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
Due to the COVID-19 pandemic National Student Loans have suspended the accumulation of interest on Canada Student Loans until March 31, 2023.
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’ve finished studying 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 that is more than seven (7) years old. 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 that are only five years old when you 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
If you have studied on numerous occasions things can become complicated as they did for Justin Goulding. Mr. Goulding studied from 1995 to 1999 (for which he received student loans), and again from 2003 to 2005. He filed for bankruptcy in 2011. Based on him finishing his most recent studies in 2005, his student loan debt would not be dischargeable until 2012 (2005 + 7 years), whereas more than seven years passed after him finishing his first program of study in 1999.
Using the “single date” approach, the student loan debt is not dischargeable in 2011. If a “multiple date” method is used instead Mr. Goulding’s student loans related to his studies from 1995-1999 would be dischar
ged by his 2011 bankruptcy.
Different jurisdictions have taken different approaches to this issue. Nova Scotia, Saskatchewan, Ontario and Newfoundland and Labrador have taken a “multiple date” approach.
In this case heard January 3, 2020 the Court ordered that Mr. Goulding’s student loans would be erased by his filing.
While a successful outcome for Mr. Goulding, it is important to realize that Mr. Goulding was required to make independent application to court to have his student loan debt erased.
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 2020-2021 OSAP application form.
Q #610: Have you ever filed for bankruptcy or initiated a related event?
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 that neither the Government of Canada or the Province of Ontario are a creditor in your consumer proposal; and
- None of the OSAP funding that you receive will be seized to repay any creditors.
Other debts to the federal or provincial government that were included in your consumer proposal may prevent you from obtaining funding from OSAP.
Assuming that you’re applying to OSAP and have no other debts due to the government then your consumer proposal should have no impact on your 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 your previous student loans were not discharged, paid in full, or it has been less than 3 years since the loans were discharged or paid in full you must meet the following eligibility criteria:
- Proof that you have no outstanding student loans; or
- A letter from your educational institution confirming:
- 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; and
- 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 2020-2021 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
To get free advice from a Licensed Insolvency Trustee, give us a call, or fill out our form. We’re offering in-person or virtual consultations by telephone or video-conference.
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.