Consumer Proposal and Student Loans
Consumer Proposal and Student Loans
Are you struggling with student loan debt? If so, here are some potential solutions to erase your student loans, including a Repayment Assistance Plan, Consumer Proposal, and Bankruptcy. You maybe able to stop the interest, consolidate all of your debts into a single payment, and arrange an affordable monthly payment.
Debt Relief
If student loans represent the vast majority of your debt, and if your income is low enough a Repayment Assistance Plan (RAP) through National Student Loans may be the right solution for your student loan debt problems. If a RAP provides sufficient debt relief to solve your financial problems, then a Consumer Proposal or Bankruptcy may not be necessary.
If eligible for a RAP, you may qualify for a reduced student loan debt payment. You may even be eligible to avoid making any student loan debt payment at all. RAPs operate in six month intervals and you must re-apply every six months and prove your eligibility. If you are eligible and accepted into RAP the Government of Canada will pay interest owing that your revised student loan debt payment does not cover. After 5 years of RAP or 10 years after you finish school, the government will begin to cover both the principal and interest that exceeds your reduced student loan debt payment.
Applying for RAP can affect your ability to qualify for future student loans until your existing loan is repaid in full.
If you have a permanent disability, you may be eligible for the Repayment Assistance Plan for Borrowers with Permanent Disability which could lower or eliminate your student loan payments.
Consumer Proposals and Student Loans
Licensed Insolvency Trustees can help you file a Consumer Proposal to erase student debt as long as you ceased being a full or part-time student at least seven (7) years before filing your Consumer Proposal. This “seven year rule” is in accordance with s178(1)(g) of the Bankruptcy and Insolvency Act (Canada).
It doesn’t matter whether or not you completed your studies and received your degree or diploma.
If you’re uncertain whether or not seven years have passed, we suggest confirming your “last date of study” with National Student Loans. As long as it’s been at least seven years a Consumer Proposal will consolidate all of your debts into a single monthly payment, including your student loan debt. A Consumer Proposal will also stop interest from accruing on all of your debts, including your student loan debt, and require you to pay less than you owe (subject to creditor approval); how’s that for debt relief?
If a RAP isn’t enough relief to solve all of your financial problems, or you have other debts in addition to your student loan debt, then a Consumer Proposal may be right for you. A Consumer Proposal protects you from your creditors and stops collection calls and wage garnishments.
A Licensed Insolvency Trustee can review your specific circumstances and explain options you may have to erase your student loans. It doesn’t cost any money to get started, and our consultations are always free.
Bankruptcy and Student Loans Canada
While always a last resort, Bankruptcy will also discharge student debt as long as seven years have passed since you ceased being a full or part-time student. Bankruptcy is often the least expensive and fastest method of erasing student loans. Bankruptcy is often appropriate when an individual cannot afford a Consumer Proposal, and needs relief from all of their debts including student loans.
While you must obtain the court order independently at your own cost and expense, s178(1.1) of the Bankruptcy and Insolvency Act (Canada) does empower the court to erase student loans when at least five years have passed since you ceased to be a full or part-time student, have acted in good faith, and are expected to continue to experience financial difficulty in the future that will prevent you from ever repaying your student loans.
If you’re considering bankruptcy we suggest speaking to a Licensed Insolvency Trustee like Steve Welker and Co. who will review your situation, educate you on the advantages and disadvantages of each potential solution, and guide you through the appropriate process.
Multiple Student Loans and Study Dates
Many individuals pursue multiple programs of studies. Sometimes a student will receive student loans for one program, and attend another program in the future for which they may or may not receive student loans. For many years these multiple dates caused confusion. Fortunately, this issue was settled by the recent decision of the Supreme Court of Canada in Piekut v Canada (National Revenue), 2025 SCC 13 (“Piekut”).
Unfortunately, the Supreme Court Ruled that the seven year period does not start until the individual ceased to be a full or part-time student. In other words, if an individual completed multiple courses of study the seven year period doesn’t start until AFTER they most recently ceased to be a full or part-time student.
Given that everyone’s circumstances are unique, it is always possible that National Student Loans will oppose debts from being erased by a Consumer Proposal or Bankruptcy in certain situations, and that it is then up to the individual to challenge that position in court.
Getting More Student Loans – Can I Get OSAP after a Consumer Proposal?
If you’re planning to fund a new program or continue existing studies after filing a Consumer Proposal or Bankruptcy you’ll need to meet specific criteria in Ontario in order to be eligible for OSAP.
The following questions appear on the 2024-2025 OSAP application form.
Q #610: Have you ever filed for bankruptcy or initiated a related event, including a Consumer Proposal or Orderly Payments of Debts?
Q#611: Is your bankruptcy discharged? Note: A Consumer Proposal is considered a “related event”
If you’re applying for OSAP during your consumer proposal (or bankruptcy) then you must provide OSAP with a letter from your Trustee indicating:
- The date the bankruptcy-related event was filed;
- That neither Ontario nor Canada is a creditor in your bankruptcy-related event as a result of financial assistance given to you through OSAP and/or the Ontario Learn and Stay Grant; (The Trustee won’t be able to satisfy this condition if you owe student loans at the time your Consumer Proposal is filed)
- That no current or future funding given to you through OSAP or the Ontario Learn and Stay Grant will be seized to repay any creditor(s) listed in the bankruptcy-related event.
Assuming that you’re applying to OSAP for the first time then your consumer proposal should have no impact on your future application, as the Trustee will be able to provide the required letter.
If you have previously negotiated student loans through a consumer proposal (or bankruptcy) after May 11, 2004 then you must provide proof that these loans have been discharged or paid in full.
If you are currently studying then your school must provide a letter confirming that:
- You were enrolled in an approved program at an approved school when you filed you consumer proposal;
- You continue to be enrolled in the same approved program of study in which you were enrolled at the time that you filed your consumer proposal; an
- You have not had a break in studies of longer than six months since the date your filed your consumer proposal.
Basically, if already have taken student loans you either have to:
- Have paid them;
- Discharged them through a past proposal (or bankruptcy) at least 3 years ago; or
- Stay in the same program, at the same school, without a break in studies of more than six months.
In other words, OSAP will continue to provide student loans to help you finish a program that you’ve already started in most cases, but won’t provide financing for a new program until the existing student loans have been paid or it’s been some time (3 years) since they were discharged.
If you answer “Yes” to both questions #610 & #611 meaning that you have been discharged from bankruptcy or completed your consumer proposal, then you must simply provide a copy of your bankruptcy search results. You can obtain a copy of these results by visiting this site, searching your name, and paying $8.00 to the Office of the Superintendent of Bankruptcy.
It is possible to have your application for OSAP approved even after filing a consumer proposal (or bankruptcy). That said, the criteria are specific and it is important to understand them so that you can weigh your options accordingly.
The information above presents a synopsis of the 2024-2025 OSAP eligibility criteria as it relates to bankruptcy and insolvency. Student loan eligibility criteria changes regularly, and Steve Welker and Company is not an expert on the eligibility criteria for student loans. If you remain concerned about your eligibility for OSAP, we recommend contacting your financial aid office directly.
Free Consultation
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Student loan debt, like all debt can be very stressful! Get the facts, and know your rights. We’d be happy to review your circumstances and explain your options for free. Let us impress you with our prompt response.