It takes focus and determination to graduate from university – and you’ll need to rely on these same traits to repay your OSAP student loans.
That’s because if you’re anything like most Canadian university and college students, you’ve had to borrow money to further your education. But you probably did so without really considering your job prospects on graduation, and how you’ll manage to repay those student loans.
Here’s what you need to know to get you closer to freedom from student loan debt.
#1. You can refinance or consolidate your OSAP student loans.
This means that you are repaying an old debt (your student loans) with a new one, hopefully at a lower interest rate.
Thing is, government-guaranteed student loan rates can be hard to beat. You will likely find that OSAP (guaranteed student loans) typically offer a lower interest rate than other bank loans.
Even if you are successful at finding a lower interest rate, you need to be aware that the new debt will no longer be considered a student loan. This means:
- You lose any student debt tax benefits you would otherwise be entitled to; and
- You would not be eligible for the government’s Repayment Assistance Program (more on this below).
#2. Filing for bankruptcy or a consumer proposal can eliminate certain student loan debt.
To figure out whether you can get rid of your student debt through filing bankruptcy or a consumer proposal, you need to determine how old your student loans are, whether they are government-guaranteed student loans or private loans, and how much you can afford to pay back on those loans.
Let’s go through OSAP student loans first.
The Bankruptcy & Insolvency Act has special laws for OSAP loans. Put simply, your student loans will be discharged (and you will NOT have to repay them) if:
- You’ve been out of school for more than 7 years; and
- You are declaring bankruptcy or filing a consumer proposal.
(Note, if you can prove financial hardship to the court, this 7 year waiting period can be reduced to 5 years. You will have to show good faith as to how you used those student loans – such as using them only for school and living expenses during school and not vacations or luxury items – and show how repaying these loans has caused and will continue to cause severe financial hardship for you.) The financial hardship test is an issue that will be determined by the Court and you should not assume you will be successful with the said application because you believe you are in hardship. If considering a hardship application, it is best to seek professional advice.
But what if your student loans are private loans?
If you used a student line of credit or a credit card, and you’re filing for bankruptcy or a consumer proposal, these loans would be treated just as loans by other unsecured creditors are treated, regardless of how old they are. They would be discharged and you would not have to repay them.
Now, bankruptcy and consumer proposals may seem like extreme actions to take to get rid of your student debt. But you should know that bankruptcy is simply a way for those individuals that are financially in-over-their-heads to get a fresh start.
As for consumer proposals, this is a negotiation process with your creditors as to what you can afford to repay on your loans. You would pay back only a portion of what you owe.
One important thing to note about filing for bankruptcy or a consumer proposal is that you will receive the benefit of an automatic stay of proceedings. This means that during the proceedings, your creditors cannot take action against you on any unsecured debt that you owe.
The stay benefits you even if your student debts are less than 7 years old and cannot be automatically discharged through bankruptcy or consumer proposal. That’s because you do not need to make any payments on your non-dischargeable student debt during this time.
But you need to understand that once you are discharged, you will need to start making payments again on any non-dischargeable student debt. Interest will continue to accrue on the full amount of your student loans not discharged in the proceedings. For this reason, many debtors elect to make small payments on their student debt during the proceedings.
#3. You can negotiate new payment arrangements through the government’s Repayment Assistance Plan.
The government offers you loan forgiveness options that can help you with repayment. The National Student Loan Service Center has a Repayment Assistance Plan that may allow you to:
- Request a temporary reduction in payments, including making interest-only payments;
- Request more time to repay your student debt (for an extension of up to 14.5 years); or
- Apply for a hardship reduction.
These first two options will keep you in debt for a longer period of time and, as such, increase the total interest you will end up paying on your student debt.
The hardship option is the only option other than bankruptcy or a consumer proposal that reduces the student loan payments you will make.
As part of the hardship reduction, the government may agree to reduce your interest for the first 10 years. It may even reduce the principal owing after those 10 years have expired. However, you will need to prove financial hardship to qualify, including meeting income threshold requirements. What’s more, approval is not guaranteed.
#4. If you have debt over and above student loans, bankruptcy or a consumer proposal may be your best option.
Most students have more than just student loan debt. They end up accumulating debt on credit cards and may even have had to take out payday loans to make ends meet every month.
In these cases, even if a bankruptcy or consumer proposal would not eliminate your student loans due to the waiting period, these legal proceedings can help you clear all other unsecured debt hanging over your head. This makes repayment on those non-dischargeable student loans more manageable.
#5. A Licensed Insolvency Trustee is the best place to get help for the repayment of OSAP student loans.
A Licensed Insolvency Trustee (LIT) is the only professional authorized by the Canadian government to assist individuals with filing for bankruptcy or a consumer proposal. So if want to file for bankruptcy or a consumer proposal to get rid of your student debt, you’ll need to start the process by contacting an LIT.
What’s more, these federally licensed and regulated professionals can assist you with a wide range of debt relief options, from simple budgeting and loan consolidation all the way to bankruptcy.
At your free initial consultation, your LIT will get a comprehensive overview of your financial situation and review the pros and cons of all debt relief options available to you, including bankruptcy or a proposal.
And because LITs are governed by strict ethical obligations in carrying out their debt relief services, you can rest assured that the recommendations made will be in your best financial interest.
Contact a Licensed Insolvency Trustee Today
It is our mission to help you find relief from your overwhelming and burdensome student debt. As a seasoned LIT with decades of experience, I am proud to have helped thousands of Canadians achieve debt relief. Don’t let your student loans weigh you down or stop you from achieving your dreams. Contact us today for your free initial consultation.