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Student Loan Debt Challenges – It’s TOUGH being a Student today – a student’s perspective.

Written by Candace W (student at the University of Victoria) and Benjy Houser (owner of 4 Pillars in Victoria)

In 2016, it seems like it is almost impossible for most young adults to obtain a post-secondary education without taking out a student loan. However, student loans can often cause as many problems as they seem to fix.

Over the past few decades, tuition prices have skyrocketed, and although minimum wage has been raised by a couple of dollars, it comes to nowhere near the amount which any full time employee would need to both survive, and pay for schooling. This disparity creates a vicious pattern: in order for young adults to get out of their minimum wage jobs, they need to purchase an education, which they can’t afford because of their minimum wage jobs, so they take out a loan.

Students, on average, complete their undergrad degrees with close to $30,000 of student loan debt. However, for students who are working at these minimum wage jobs, have children, or are otherwise unable to work full time during their studies (which is an impossible task if one wishes to earn high grades in school), student loans are often closer to $50,000. This is the maximum amount of debt which any student can borrow from Student Aid BC. However, many high paying jobs require further education, (a Master’s degree or PhD), so many students who have obtained their Bachelor’s degree are forced to go back to their minimum wage jobs, and face a future where they may never pay off their debts. It feels like an inescapable trap.

This pattern has caused a number of problems for youth in Canada. Over 40% of Canadians will have to live with their parents to the age of 30. Unemployment for young adults in Canada currently sits at 27%. Since the recession of 2008, it has become the norm for students to leave school with massive debt, only to face a weak labor market that has no room for them. In fact, 23% of post-secondary graduates are NEVER able to find a job in their area of study. Student debt interest begins to accumulate the day after one graduates (despite a deceiving 6 month grace period where students are not required to make payments; interest is still accumulated during these first 6 months), and that $50,000 easily turns into $60,000, $70,000, $80,000 and so on, in the years that follow. Because of this, many former students are NEVER able to pay off their debt, and the total amount of student debt currently held in Canada is over 23 BILLION dollars.

For more information about how student debt affects us all, check out: http://cfs-fcee.ca/wp-content/uploads/sites/2/2015/03/Report-Impact-of-Student-Debt-2015-Final.pdf

Despite the fact that student debt is one of the most widespread financial challenges in Canada, most students are unaware of the ways which this debt can be managed. Student Aid BC offers a Repayment Assistance Plan, found here: https://studentaidbc.ca/repay/repayment-help/repayment-assistance-plan

However, this is not the only option for people struggling with massive student debt – luckily there are a few alternative solutions.

Here are some steps to follow when dealing with a Student Loan Debt Problem (< 7yrs old):

If your student loans are LESS than 7 years old (from your last day of class as a full time student), then your best options are to:

  1. Besides the obvious solution of looking for a higher paying job, for those who have not yet attained that, you can try to apply for interest relief (also known as repayment assistance, through the link above).
  2. Call Student loans to try to work out a more affordable payment plan.
  3. New FEDERAL BUDGET – There are some NEW 2016 changes to the Federal Budget with the new Liberal Government that will affect student loan repayment in a positive way possibly – since the rules are so new we cannot comment on how it will work exactly or when they take effect – but here is the update “Changes to financial aid include allowing low-income graduates to defer their student loan payments until they make more than $25,000 a year”. This could be a big bonus for students but it may take a while to take effect and does not help students that need help right now. Read News releases about it or follow up on Canada Student Loans website.
  1. If you have OTHER debts, you may file a Consumer Proposal or Bankruptcy to relieve those debts, which should drastically reduce your monthly payments, BUT you will still be left with the bulk of the student loans still owing at the end of it.
  2. If you’ve filed a Consumer Proposal or Bankruptcy for your other debts and your student loans were less than 7 years old at the time, you can look into doing a Hardship Application to help with your student debt. More on that below.

Here are some steps to follow when dealing with a Student Loan Debt Problem (< 7yrs old):

  1. Once the loans are more than 7 years old you can still consider repayment assistance options above. Or if the debts are just too unmanageable then there are more aggressive options.
  2. One of the easiest and most effective ways to reduce/eliminate your student loan cost is to add the student loan debt to an Insolvency, (also known as a Consumer Proposal or a Bankruptcy), which will both lower the monthly payments, lower the interest to 0%, and lower the principal of the loan down substantially. This is what we recommend if you are still not able to afford the student loan payments even with the help of repayment assistance.

To learn more about doing a Consumer Proposal, click here:

https://debtvictoria.com/resources/about-consumer-proposals

For people stuck in bad student debt that is less than 7 years old – here is more on steps 3 and 4:

If a current or former student gets into other debt (with credit cards, lines of credit, etc), while their student loans are less than 7 years old, it can make for a very messy debt situation. It IS possible to eliminate/reduce the other debt with a Consumer Proposal or Bankruptcy while the Student Loans are LESS than 7 years old, BUT it’s messy because the student loans cannot be eliminated or reduced. This means you will end up STILL owing your student loans AFTER the Bankruptcy/Proposal… which can be VERY FRUSTRATING. There are times, however, when people have literally no choice but to choose this option, as they may have creditors hunting them down for payment or garnishing their pay.

If it happens that there are leftover Student Loan Debts AFTER Consumer Proposal or a Bankruptcy, there is still ONE last option that people have in order to get rid of the lagging debt, which is to do a “Hardship Application” through the Court. This process involves asking the court to forgive your student loans. Many people have success doing this, however, the results will vary from person to person as the results really depend heavily on each individual situation.

Some of the factors which will determine the outcome of the Hardship Application are questions the court will ask the debtor. These may include:  “Was the money used for the purposes of the loan? Did the applicant complete his or her education? Did the applicant derive economic benefit from their education? Has the applicant made reasonable efforts to repay the loan?” etc.

These questions are meant to determine whether it seems reasonable for the loans to be forgiven, and to prevent people from abusing the system or trying to get off easy. However, it is completely reasonable for a person who has not benefited from their education (in the form of a good job), and who has had to file a Consumer Proposal or Bankruptcy because of it, to be able to find relief from their financial nightmare.

The process of the Hardship Application is complex, and VERY specific to individuals who are stuck with student debt post insolvency. Due to these complexities, it is not recommended to try to do it yourself. We can recommend a few lawyers help you at a very low cost.

In Summary

Student loans are both helpful and harmful, both liberating and defeating. If a loan helps an individual to land a great career, then student loans can be a wonderful tool to use. However, if there is no career or job to be attained after graduation, then student loans can often leave a graduate feeling smothered under a massive unmanageable weight of debt.

For more information, and help with your Student Loan and other debt, contact us for a Free Debt Assessment!