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Student loans debt and bankruptcy

The Canada Student Loans Program (CSLP) has implemented changes that allow borrowers who participate in a bankruptcy-related event to apply for new federal loans while in-study and for debt management measures while in repayment. A bankruptcy-related event includes: bankruptcy, filing a consumer proposal and/or participating in a provincial scheme for the Orderly Payment of Debts.

Borrowers who participate in a bankruptcy-related event:

  • Are eligible for interest-free status on full-time student loans while in-study

  • Have access to new student loans for a maximum of three years, provided that the borrower remains in the same program of study and does not drop below full-time status; and

  • Are able to access debt management measures, including: Interest Relief and Debt Reduction in Repayment

Debt management measures

Interest relief

Interest relief (IR) provides relief to borrowers who are experiencing temporary financial hardship. While borrowers are receiving IR, they are not required to make any payments on their student loan (interest or principal) and the Government of Canada pays the monthly loan interest.

Borrowers may receive up to a total of 54 months of IR. Up to 30 months of IR is available at any point in repayment. Borrowers who use up their 30 months and have not been out of school for five years (as indicated by the post-secondary end date specified on the initial application for IR), may receive up to an additional 24 months of extended IR.

Debt reduction in repayment

Debt reduction in repayment (DRR) is available to assist borrowers who have exhausted IR and who continue to experience exceptional long-term financial difficulty. The measure provides a reduction in the borrower's loan principal and aims to reduce the monthly loan payment to an affordable level relative to the borrower's income.

Borrowers in financial difficulty may be eligible for an initial reduction of their loan principal of up to $10,000. Borrowers who continue to experience difficulty in repaying their student loans may be eligible for two additional reductions of up to $5,000 each. In order to be eligible, twelve months must elapse between each reduction. Borrowers will be required to make a minimum monthly loan payment of $25 in order to qualify for the second or third reduction.

Repayment assistance plan

Effective August 1, 2009, the Repayment Assistance Plan (RAP) replaced the IR and DRR repayment measures; although, borrowers approved under those programs will continue to utilize those measures until the applicable end periods. The RAP is a two-stage repayment program available to assist borrowers in repaying their loans over a maximum 15 years and is based on the borrower's family income and size. Stage I consists of the first five years in which loan payments not exceeding 20% of family income are applied to the principal amount of the loan while the Government covers the interest portion. If repayment difficulties persist beyond five years, stage II sees the Government continue to cover the interest portion and, eventually, a portion of the principal amount along with the borrower's loan payments which will continue to be based on income level and family size. Learn more:

New loans and interest-free status

Borrowers who participate in a bankruptcy-related event while in full-time study may apply for new Canada Student Loans for a maximum of three additional years. In addition, borrowers will be eligible for interest-free status on all existing Canada Student Loans. In order to remain eligible for new loans and/or interest-free status, these borrowers must remain in the same program of study on a full-time basis.

Student loans and bankruptcy

Student loans will be discharged in a bankruptcy as long as it has been seven years since you last attended school at the time you make a bankruptcy filing. The same seven year cut-off applies for proposals. See also this FAQ.

Our Grant Thornton Limited professionals can help you with your student loan concerns as they affect a bankruptcy or proposal. To speak to someone now call us at 902-310-6060 for a free, no obligation, confidential consultation.

For additional information regarding Student Loan issues contact:

debt help and bankruptcy National Student Loans Service Centre
Public Institutions Division: 1.888.815.4514
Private Institutions Division: 1.866.587.7452

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© 2017 Grant Thornton Limited, Licensed Insolvency Trustees. All rights reserved.

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