Consolidating Student Loan Debt

Student loans have steadily risen across most of the country, even as the middle class has been steady for the past two decades. For the current school year, average university tuition costs in Canada are almost $6,200 for undergrads and just over $6,400 for graduates. Alberta has just begun to follow Newfoundland and Labrador’s lead of 12 years ago by freezing tuition fees to help students better afford their education.

Funding High Tuition Costs
In order to access a postsecondary education, about 425,000 students in Canada have borrowed about $16 billion from the Canada Student Loan Program, but this accounts for only 60 percent of all student loans. Many students get loans from banks through student lines of credit and credit cards, at a frequency that has more than doubled in the five-year period between 2005 and 2010.

High tuition costs coupled with requisite loans has resulted in greater debt than previous students ever incurred. The Canadian Federation of Students pegs the typical student debt at $27,000, which takes 10 years on average to pay back in full. With a greater debt load, more graduates are responding by living with parents again; in 2011, this rate was double of that in 1981.

Government Student Loans
The federal government’s Canada Student Loan Program (CSLP) and the provinces that may fund their own programs or run in parallel with the CSLP will fund eligible full-time students for a period. The loans are interest-free during full-time studies for a limited duration. Once a student leaves school, a six-month grace period (except in Quebec) starts. Thereafter, loan payments with interest are required, whether the individual has found a job or not.

Debt repayment is understandably challenging for many individuals, which depends on the income borrowers can earn and based on the job opportunities they obtain. Finding a great job within one’s chosen field, particularly so soon after graduating, can be difficult, especially in a tough job market where competition can include more experienced job seekers who were recently laid off. Apparently, two years after graduating, students, on average, are earning about 14 percent less in 2012 than their counterparts who graduated in 2005. Students who left their program of study without graduating could have even more difficulty in finding a good job by potentially having fewer qualifications to offer an employer.

Repayment Assistance Plans
Repayment assistance plans (RAP) are available across Canada, both federally and provincially (except for Quebec). In a RAP, you can revise your government student loan payment based on your family income and size. Students can negotiate making payments only once their income increases and can negotiate receiving interest relief up to 15 years, after which, relief of the entire debt may be possible.

Students must be out of school at least seven years before a consumer proposal or bankruptcy can discharge a student loan debt altogether. However, sometimes people file a consumer proposal or file for bankruptcy before the seven-year period is up in order to reduce or eliminate their other debts.

Student Loan Consolidation
A loan consolidation entails combining outstanding debts from several institutions, usually at a bank or credit union. If approved, this debt refinancing means you will owe debt to a financial institution instead of the government and in one loan at a single interest rate rather than owing money to both the government and possibly in other loans (e.g., credit card debt).

Advantages and Disadvantages
An overall lower interest rate on all debt can result from debt consolidation. You can also reduce your monthly payments and extend the period of time you have to make repayments, compared to government student loan plans. Having more manageable payments can help to boost and repair a potentially negative credit rating or build a positive score.

Further, by owing to the bank instead of the government, you have more options available in the event that you cannot pay. Since the consolidated loan is not with the government, your tax refund would not be seized if you failed to pay. Further, with debt consolidation, your debt could be potentially discharged under a consumer proposal or bankruptcy, which isn’t possible under the CSLP within the first seven years of leaving school.

As with most financial decisions, there are some drawbacks to consider before going ahead with debt consolidation involving a loan. Lenders may require a co-signature to indemnify them in the event of default. Further, there will be no opportunity for interest that is available under government student loans. Accumulated interest may also be tax-deductible on government student loans, but this opportunity does not exist on personal loans. Additionally, as a result of this risk assumed by the bank, your consolidation loan interest rate could be higher than the interest rate under a government student loan.

Call A.C. Waring & Associates in Edmonton for Available Debt Solutions
A Licensed Insolvency Trustee in our Edmonton office can help to review your options before you decide on loan debt consolidation or other next steps. A Licensed Insolvency Trustee at A.C. Waring & Associates Inc. can provide solutions to get out of debt. Call us at 780-424-9944 or 1-800-463-3328.

A.C. Waring & Associates

First Edmonton Place, 410-10665 Jasper Ave NW, Edmonton, AB, T5J 3S9|
Main: 780-424-9944 | After Hours: 780-423-3328 | Toll Free: 800-463-3328
A.C. Waring & Associates is your trusted Edmonton-based regional bankruptcy trustee and debt solutions company. We specialize in debt solutions for personal or business matters, including debt and credit counselling, debt consolidation, consumer proposals, bankruptcy proceedings and other debt help solutions. If you are overwhelmed by debt and need solutions, A.C. Waring & Associates will help you find the path to a debt-free life. We proudly offer services to Northern Alberta communities as far as Grande Prairie, Fort McMurray and the surrounding areas. Contact us today for a free consultation at 780-424-9944 or toll-free at 1-800-463-3328.