Student loans are discharged in a bankruptcy if they are more than 7 years old but what if you don’t want to file bankruptcy or your loans are less than 7 years old. If you owe money on student loans, you have the following debt reduction options.
Option 1 – Pay As Agreed
Your best option, where possible, is to make the required payments. In most cases the interest rate is reasonable, so if it is possible keep your payments up to date. Try not to fall too far behind since having to catch up with when you may find yourself in difficulty.
Option 2 – Debt Consolidation
If you are working, or if you have a co-signor, it may be possible to borrow the money necessary to repay your student loan. However, you should be very careful with this option, since it is likely that your debt consolidation loan may carry a higher interest rate than your current student loan. Consolidating you student debt may mean you will pay more, and remain in debt for a longer period.
Option 3 – Interest Relief
If you are having trouble making your payments, you should contact your student loan lender and find out if you are eligible for interest relief, or any other repayment assistance. The rules vary across Canada, and different rules will apply to a federal or provincial student loan. Your ability to receive interest relief will depend on when you graduated, and whether or not you are working. If you qualify for interest relief, ask for it.
Option 4 – Payment Holidays or Deferrals
In many cases payments on student loans are not required to begin until a period of time after graduation, often six months. If you are not working, you may be able to apply for a longer deferral. Again, the rules are different across Canada, and deferring your payments generally implies that you will end up paying more in interest, so do your research and consider your options.
Option 5 – Informal Proposal
If you can’t make your full monthly payment, talk to student loans and negotiate for partial payments. In most cases paying something is better than paying nothing. If you get far enough behind on your federal student loan payment they have the ability to seize your tax refunds, so making at least partial payments may help you preserve your tax refunds.
Option 6 – Consumer Proposal
A formal proposal, or a consumer proposal, is also an option.
As with personal bankruptcy in Canada, a student loan is only automatically discharged if you have “ceased to be a student” for seven years. If you graduated six years ago and file a proposal (or go bankrupt) today, your student loan will not be automatically discharged. It doesn’t matter when you got the loan; all that matters is when you ceased to be a student.
If you have other unsecured debts like credit card debts or payday loans, a consumer proposal can help you eliminate those debts. This may free up enough cash flow to allow you to meet your student loan obligations.
Option 7 – Bankruptcy
If you have no other option, you can consider bankruptcy. Again, your student debt will not be eliminated unless you have not been a student for at least 7 years.
If you have student loan debt, contact a licensed bankruptcy trustee who can help you examine all of your debts and fully explain your options in a no charge initial consultation.