It can be overwhelming if you’re saddled with student loan debt, and you’re not alone. In 2020/2021, the average student loan debt at the time of leaving school was $14,418.

If the Repayment Assistance Plan and provincial student debt programs cannot help you, a consumer proposal can offer student loan forgiveness in Canada.

This guide will examine how a consumer proposal can erase your student loan debt and the options available if you are not eligible.

How to reduce student loan debt

Repayment Assistance Plan (RAP)

If most of your debt is made up of student loans, the Repayment Assistance Plan can help you repay the federal portion of your student or apprentice loan by reducing or eliminating payments for up to six months at a time.

The program helped 309,000 borrowers during the 2020/2021 academic year.

If you qualify, you might not need to file a consumer proposal.

You can re-apply every six months through the National Student Loans Service Centre (NSLSC).

You don’t make repayments if you earn less than $40,000 per year, and there is a cap on monthly payments of 10 percent of a borrower’s household income.

Note: the Canadian government has frozen interest on Canada Student Loans and Canada Apprentice Loans until March 31, 2023.

Provincial debt forgiveness

In addition to the Repayment Assistance Plan, there are student loan forgiveness programs available in some provinces, including the following:

  • B.C. Loan Forgiveness Program
  • Nova Scotia Student Loan Forgiveness Program
  • PEI Debt Reduction Grant Program
  • Quebec Loan Remission Program

You can learn more about student loan forgiveness here.

Consumer proposal and student loans

If you are not eligible for the Repayment Assistance Plan and provincial debt forgiveness programs cannot help you, a consumer proposal might be able to help.

A consumer proposal is a government debt relief program that allows you to eliminate your student loans, giving you protection from your creditors and consolidating your debts into one low payment.

Under the Bankruptcy and Insolvency Act, there is a seven-year rule for discharging student loan debt in a consumer proposal.

You can clear Canada student loan debt through a consumer proposal if it’s been at least seven years since you were a full-time or part-time student.

If it’s seven years since your last date of study, a consumer proposal can eliminate your student loan debt.

The date begins at the end of your academic term. You can request your end-of-study period from the National Student Loan Service Centre (NSLSC).

Your student debt is treated like all your other unsecured debts and is consolidated into one affordable monthly payment. Interest stops being added to your debts, including your student loan debt, and you could pay less than you owe.

The Pros and Cons of a Consumer Proposal in Canada.

Creditor lawsuits, wage garnishments and collection calls stop, and all of your debts are discharged upon completion.

If it’s been less than seven years since you attended school, you can’t erase your student loan in a consumer proposal.

However, by entering into a consumer proposal for your other debts, you could consolidate them into one affordable monthly payment and free up money for your student loan repayments.

A consumer proposal can eliminate most unsecured debts, including credit card debts, loans, bank overdrafts, taxes, utility bills and other lines of credit.

You can include tax debt in a consumer proposal.

Your proposal must list all of your unsecured creditors.

You could also stop making student loan repayments while in the consumer proposal. Once it’s complete, any amount owing to student loans would still be your responsibility, and interest continues to accrue on the debt.

Other unsecured debts and private student loans

Debts accumulated during your student years, like private student loans, bank loans and credit cards, can be erased in a consumer proposal, regardless of age.

Can you get a student loan after a consumer proposal?

After filing a consumer proposal, you must meet specific requirements to qualify for a new student loan.

You’ll be required to disclose your consumer proposal, whether it has been discharged and meet some criteria. You may need to provide various documents and evidence that your debts were discharged.

Wrapping up

A consumer proposal lets you reduce and wipe out unsecured debts, including student loans, if it’s been seven years since you were a student. You cannot erase student loans under seven years old, but you can take a loan payment break while completing the process.

Even if you cannot include your student debt, you can consolidate your unsecured debts into one affordable monthly payment, which could free up money to pay your student loan.

Ask a Licensed Insolvency Trustee if a consumer proposal could help eliminate your student loan debt.

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