Should Canada forgive student loans?

Student loan debt is a significant financial burden for many students. According to Robertson College, the average student loan debt is $28,000. Student loans are one of the financial essentials for post-secondary students. As education becomes more expensive, students often have substantial debt upon graduation. Depending on the program, some students may carry their student loans many years after leaving post-secondary education.

The idea of student loan forgiveness has sparked many debates, and the desire for student loan forgiveness programs is clear. Whether it's federal or provincial student loans, student loan forgiveness is complex. We explore the arguments for and against student loan forgiveness, potential implications for students, various student loan forgiveness programs, and ways to manage your debt.

Does student loan forgiveness in Canada exist?

There's no nationwide student loan forgiveness program implemented in Canada similar to those proposed or implemented in other countries like the United States. However, we have existing programs and provisions to assist borrowers in managing their student loan debt.

The Student Loan Repayment Assistance Plan (RAP)

The Repayment Assistance Plan is a federal program assisting borrowers struggling to repay their student debt due to low income or financial hardship. Borrowers may qualify for reduced monthly payments or full student loan forgiveness after a certain period. Specific eligibility criteria depend on the jurisdiction, but general guidelines include borrowers with:

• low income relative to family size

• government student loans, including federal and provincial loans

• Canadian citizenship, permanent residency, or protected person status

• high debt-to-income ratio

• unemployment, underemployment, or other forms of financial hardship

While the Repayment Assistant Plan assesses each applicant's circumstances, these factors can influence eligibility. Borrowers interested in RAP typically submit an application form with supporting documentation.

Loan forgiveness for public service

Some provinces offer loan forgiveness programs for individuals in designated public service professions, such as healthcare, education, or social work. These programs may forgive a portion of the borrower's student loan debt for each year of service in a qualifying position.

Provincial and territorial loan forgiveness programs

Some borrowers may have their provincial student loan forgiven based on the eligibility criteria and benefits in the specific province or territory. These programs often target certain groups or professions in high demand or facing shortages.

Indigenous student loan forgiveness

In recognition of the unique challenges Indigenous students face, specific loan forgiveness programs are available. These programs are typically offered through Indigenous Services Canada or provincial governments.

Who is eligible for student loan forgiveness in Canada?

Student loan forgiveness programs target specific groups or professions based on job market demand, roles, demographics, and income. Common categories of individuals who may be eligible for forgiveness of their Canada Student Loans include:

• public service workers, such as social work or public safety

• medical professionals, like doctors, nurses, pharmacists, and nurse practitioners

• teachers and educators, especially in designated high-need schools, rural communities, or Indigenous communities

• Indigenous individuals

• graduates in high-demand fields, such as science, technology, engineering, and mathematics

• volunteers and non-profit workers

• individuals with permanent disabilities

Individuals with low income may also qualify for loan forgiveness if they meet the requirements set by the federal government and the province or territory they reside in. It's essential to research specific loan forgiveness programs, meet the criteria and application deadlines, and submit the required documentation. Government agencies, financial aid offices, and student loan servicers can provide information and assistance regarding available options.

Student loan forgiveness in Canada by province

Here's a brief overview of student loan forgiveness programs by province.

British Columbia (BC)

BC doesn't have a province-wide student loan forgiveness program but offers repayment assistance through the BC Loan Forgiveness Program for Nurses and Practitioners. This program forgives some of the provincial student loan debt for eligible nurses and nurse practitioners in designated rural or remote communities.

Alberta

Alberta offers the Alberta Student Loan Relief Program, which provides debt reduction for qualifying low-income borrowers. The program aims to reduce or eliminate the provincial portion of the borrower's student loan payments.

Saskatchewan

Like BC, the Saskatchewan Student Loan Forgiveness Program for Nurses and Nurse Practitioners forgives up to $4,000 yearly of student debt for eligible borrowers. Borrowers should be working in designated rural or remote areas of the province.

Manitoba

The Manitoba Student Loan Forgiveness Program for Physicians forgives part of the provincial portion of student loan debt. The amount of student debt forgiven relates to the number of years of service the borrower has in designated communities.

Manitoba also has a Student Aid Repayment Assistance Plan to ensure those facing financial hardships can manage their student debt. Manitoba Student Aid administers the program and offers reduced monthly payments, debt reduction or forgiveness, and interest relief.

Ontario

Ontario doesn't have a provincial student loan forgiveness program. However, it offers repayment assistance through the Ontario Student Loan Rehabilitation Program, which helps borrowers in default on their student loans rehabilitate their student debt and regain eligibility for financial assistance.

Quebec

Quebec offers repayment assistance through the Quebec Student Financial Assistance Program, which provides loans and bursaries to eligible students based on financial need. The Loan Remission Program allows borrowers to reduce their student loans by 15% if they complete full-time studies within a prescribed deadline.

New Brunswick

New Brunswick provides the Timely Completion Benefit, which provides a 10% reduction in the provincial portion of the student loan debt. To qualify, borrowers must have completed their full-time post-secondary program within the specified timeframe. The program also incentivizes students to complete their higher education within a reasonable time.

Nova Scotia

The Nova Scotia Student Loan Forgiveness Program helps borrowers repay the provincial portion of their student loan for up to five years and $20,400. Nova Scotia also offers the Nova Scotia Loan Forgiveness Program for Family Physicians and Nurses. It forgives a portion of student debt for eligible family physicians and nurses working in designated or underserved areas of the province.

Prince Edward Island (PEI)

PEI offers a Repayment Assistance Program to assist borrowers struggling to pay their student loan debt because of low income or financial hardship. The program offers reduced monthly payments or loan forgiveness options. Borrowers must have loans through the Canada Student Loans Program (CSLP) or Prince Edward Island Student Loan Program to qualify for the program.

Newfoundland and Labrador

The Newfoundland and Labrador Student Loan Forgiveness Program for Nurses forgives a portion of student debt for eligible nurses. Borrowers must work in designated areas and communities within the province.

What are the benefits of getting your student loans forgiven in Canada?

Forgiveness for your Canada Student Loan debt can offer significant benefits to borrowers. Here are some key advantages to having your Canada Student Loan forgiven.

Debt relief

One of the most benefits of loan forgiveness is the relief from debt burden. Repaying the debt owed can be stressful for borrowers with financial hardships or struggling to make ends meet. Forgiving a portion or all of their student debt can provide much-needed relief and alleviate financial stress.

Improved financial stability

Forgiving student loans can improve financial stability by freeing up disposable income that would have otherwise gone to loan payments and interest costs. Borrowers can use the extra money for essentials, savings, or investments to achieve greater financial security.

Increased disposable income

With reduced or eliminated student loan payments, you have increased disposable income to buy the things you want, which can result in a higher standard of living. You have more funds to pursue personal interests and invest in further education to enhance career advancement opportunities. More disposable income can contribute to your overall well-being.

Reduced stress

Student loan debt can be a significant stressor for borrowers, especially with financial hardship and extenuating circumstances. By having their loans forgiven, borrowers can have relief from worrying about finances, leading to improved mental health and well-being.

Long-term financial benefits

Reduced debt can contribute to long-term financial benefits, like improved credit scores, reduced interest costs, and increased eligibility for other credit or financial products. It can positively impact your financial future and well-being, setting you up for success.

What happens when you can't pay your student debt?

It's crucial to be proactive and transparent if you can't repay your student debt. Missed payments result in late fees, interest accrual, and a penalty to your credit score. It increases the total amount owed over time and makes it more challenging to qualify for future loans.

If you consistently miss payments, your loan may be considered delinquent or in default. Your lender may initiate the collections process, which can involve contacting you to discuss repayment options or transferring your debt to a collections agency. In extreme cases, your lender or collections agency may seek legal action to garnish your wages. A portion of your income will be deducted directly from your paycheck to repay the debt.

If you default on federal government loans, the government may intercept your tax refunds and apply them toward your outstanding balance. Defaulting on student loans may result in the loss of certain government benefits, such as eligibility for future student financial aid, professional licensing, or social assistance programs.

Can you declare bankruptcy to get rid of your Canada student loan debt?

Declaring bankruptcy typically doesn't discharge your student loan debt unless you meet certain conditions. Student loans issued under CSLP or a provincial student loan program are subject to eligibility requirements regarding bankruptcy and discharge.

When you declare bankruptcy, an automatic stay goes into effect. It temporarily halts most collection actions. Student loans are generally considered non-dischargeable in bankruptcy if you have been out of school for less than seven years. Your student debt won't be automatically discharged unless you meet certain conditions.

If you have been out of school for at least seven years and can't repay your outstanding debt, you may be eligible to apply for discharge through a hardship provision in the Bankruptcy and Insolvency Act. The provision allows borrowers to seek relief from student debt if repaying it causes undue hardship. You must apply to the court, which assesses your financial situation.

Registered Education Savings Plan

The Registered Education Savings Plan (RESP) is a tax-efficient way for families to save for their children's education with the benefit of government grants and tax-deferred growth. You can contribute up to the maximum limit per beneficiary of $50,000 and hold the funds in various investments, like mutual funds, stocks, and bonds.

Once the beneficiary enrols in a qualifying post-secondary education program, they begin receiving payments consisting of the investment earnings and government grants accumulated in the RESP. Borrowers can use RESP for college savings to pay tuition fees, books, housing, and other school-related expenses.

Debt consolidation or refinancing your loans

Debt consolidation involves combining multiple debts into a single loan or line of credit with more favourable terms. Refinancing is a financial strategy that replaces an existing loan with a new one, typically with lower interest rates, reduced monthly payments, or a shorter repayment term.

Consolidating multiple student loans into a single loan or refinancing your loans with a private lender may lower your monthly payment on your debt. It extends the repayment term or secures a lower interest rate to make your loans more manageable. However, refinancing federal loans with a private lender may result in the loss of federal benefits, such as income-driven repayment plans or loan forgiveness programs.

How to prepare for student loan forgiveness if you're approved

If you've been approved for student loan forgiveness, first breathe a sign of relief as you feel a weight lifted from your shoulders. Here are some steps to take to ensure a smooth transition.

Understand the terms

Review the terms and conditions of your student loan forgiveness approval letter or agreement. Ensure you understand the specific requirements to maintain eligibility for loan forgiveness. Keep detailed records of your compliance, including documentation of employment, certificate of qualifying payments, or other criteria outlined in the agreement.

Continue to make payments if required

Depending on the loan forgiveness program, you may still need to make qualifying payments during the forgiveness period. Ensure you continue to pay on time and by the outlined requirements. Take advantage of your forgiveness program's benefits if there are any, like interest subsidies or tax advantages, to maximize your savings.

Plan for tax implications

Beware of potential tax implications related to student loan forgiveness. Forgiven loans may be considered taxable income, which can affect your tax owed in the year of forgiveness. Consult a tax professional to understand how student loan forgiveness may impact your taxes and plan accordingly.

Budget wisely

Consider how you can allocate funds that would have gone toward a student loan payment. Budgeting in college and after you graduate is essential to ensure you have financial stability. Create a realistic budget that reflects your financial goals and priorities, and create a manageable strategy to achieve these milestones.

Build emergency savings

Use the extra cash from your loan forgiveness in Canada to build your emergency savings. A robust emergency fund can provide financial security and peace of mind in case of unexpected expenses or emergencies.

Build financial success in and out of school with KOHO

Higher education is an investment towards your future, opening many career opportunities and improving your quality of life. But it can come at a hefty price. With the help of KOHO's expert guidance and financial products, you can start your financial journey in and out of school in the right direction.

Whether you want to budget for your student loan, stay proactive in case of emergencies with overdraft protection coverage, or build credit with a virtual credit card, KOHO is a good option among the student bank accounts in Canada. Our no-cost spending and savings account has no monthly fees, instant cash-back rewards, and the ability to earn interest on your balance. Your money is valuable, and with limited income opportunities, we help you maximize savings so you can put more money toward your education.

With a copy of your free credit score, stay on top of your credit history and ensure you're on track toward financial success as a student and after you graduate.