Expert Advice: I can't pay my student loan
- Stage 2: The Government of Canada continues to cover interest payments and will begin to cover the principal amount owing that is not met by the borrowers affordable payment. The debt is gradually paid off so no debt remains after 15 years.
- Repayment Assistance Plan for borrowers with a permanent disability (PD): RAP-PD is similar to RAP in that it is based on affordability and delivered in six-month increments; however the loan repayment period is not to exceed 10 years, as opposed to 15. In some unique cases persons with severe disabilities may still qualify for Permanent Disability Benefit in which loans are forgiven.
If you have student loans through any government program, you may qualify for other types of help. "One of the things students need to be aware of is in many provinces any student debt over a certain amount is forgivable," adds Schwartz. "The rules are different for each province, but look into this first." Click here for details on how to contact your provincial/territorial student assistance office for advice.
Note the governments of the Northwest Territories, Nunavut and Quebec do not participate in the national program, but offer their own financial assistance for students.
Cleo Hamel, senior tax analyst and national spokesperson for H&R Block Canada, Calgary
Even with government help, some individuals still struggle. Hamel stresses, however, defaulting is not a good idea.
The NSLSC website warns: "If you default on your student loans, you could face additional interest charges and the loss of future student loans and/or income tax refunds. You may also have to deal with a collection agency and possibly face legal action. You could also establish a bad credit rating."
Once you default, the NSLSC will register your outstanding debt with the Canada Revenue Agency, says Hamel "You'll feel the impact when you file your tax return. Any monies you're owed will be taken to pay back the student loan debt…. As with any agency that has a collection department, they can be really ruthless."
Overwhelming debt from a number of sources may prompt people to consider bankruptcy; however it's usually not the answer when the primary issue is student loan debt.
"Student loans cannot be removed through bankruptcy," says Hamel -- at least not in the short term.
While filing for bankruptcy releases you from most debts, there are limitations outlined in the Bankruptcy and Insolvency Act: "If you have not been out of school for more than seven years when your personal bankruptcy or consumer proposal is filed, you will still be responsible for repaying your student loans."
With that in mind, the best plan when struggling with student debt is to be proactive and seek advice before things spiral out of control.
Michelle Warren is a freelance writer in Toronto.