Currently, the average Canadian graduating university with a bachelor’s degree is expected to owe around $28,000 in student loans.
Those who attend trade schools or non-university colleges average to accumulate around $15,000 in debt. Students who pursue further education and obtain their master’s or doctorate degrees can easily find themselves buried in debt.
From provincial debt forgiveness to the Repayment Assistance Program (RAP), there are several options for student loan forgiveness in Canada.
Below, I’ll explain a bit more about how student loan forgiveness works in Canada, who’s eligible for it, and the various types of repayment assistance and forgiveness you may receive.
Few take out a student loan with the intention of not paying it back. We eagerly jump into college, intent on earning our degree, getting a good-paying job in our chosen field, and easily paying the loan off in a short period of time. This is the entire premise of student loans.
However, life is nothing, if not unpredictable.
Unforeseen circumstances can affect one’s ability to repay their loan. Some examples include:
- Unexpected job loss or layoff
- Dropping out of school due to a medical/personal issue
- Difficulty finding employment after graduating
If you’re drowning in student loan debt and are having trouble keeping up with your payments, you’re not alone. Student loan forgiveness and repayment assistance programs are available that can eliminate or reduce the amount of money you owe.
Debt forgiveness is generally limited to government-issued student loans in Canada. For example, if you received a CSFA loan (Canada Student Financial Assistance Program), then you should be able to enroll in the Repayment Assistance Program (RAP) offered by the federal government.
However, debt forgiveness is a lot trickier when it comes to private student loans. On paper, a private student loan isn’t all that different from a traditional bank loan. And let’s be honest – when was the last time you heard of a major bank forgiving a loan?
This is why private student loans are generally regarded as riskier for borrowers and students. These loans aren’t eligible for the same borrower protections that federal loans are, and forgiveness is left entirely up to the lender. Although the lender could forgive the loan, it’s very unlikely that they will.
If you’re in default on a private student loan, the loan won’t be eligible for RAP and other borrower protections. If you’re falling behind on payments, your best bet is to come to an agreement with the lender.
Ultimately, the lender just wants to get their money back. They would rather you pay the money back over a longer period of time than not at all.
Renegotiating your loan terms is a relatively simple process. First, you’ll need to speak with a representative from the lending company. Explain your financial situation and that you’re unable to keep up with your monthly repayments. At this point, you may also be asked to provide evidence of financial need by showing your bank statements.
If everything goes well, you could get your monthly payment reduced to an amount that’s easier for you to afford. Depending on the lender, these changes may come with a higher interest rate or certain penalties, but these are usually worth it.
If your lender isn’t willing to work with you and reduce your monthly loan payments, then your next best option is to refinance your loan. This involves working with another lender who will take over the loan and give you a more favourable payment plan.
Loans Canada is an online loan marketplace that can connect you with loans and allows you to compare rates from different lenders. Although refinancing may come with additional fees or interest, it may reduce your monthly payments allowing you to keep up with your payment schedule and reduce negative credit marks from missed payments.
Prior to 2009, there were two primary forms of student loan forgiveness and relief in Canada:
- Interest Relief
- Debt Reduction in Repayment
In late 2009, though, the government rolled out the Repayment Assistance Program (RAP) to replace both these forgiveness and relief options. RAP encapsulates and expands on many of the elements included in both of the previous programs.
The goal of RAP is simple – to make loan repayment easier by reducing monthly loan payments on federal loans obtained through the Canada Student Loan Program.
If you’re approved for the RAP program, you’ll still have to pay your student loans back in full. However, you’ll be given a reduced monthly payment which will presumably make it easier for you to keep up with your loans.
The standard loan period on federal student loans is 114 months (9.5 years). However, if you’re approved for the RAP program, you could receive an extension increasing your loan repayment period up to 174 months (which comes out to 14.5 years).
Essentially, RAP adds an extra 5 years onto your loan term, which can cut your monthly payments down by 50%.
Another option that RAP may offer is to temporarily reduce your student loan payments. This can be useful if you suddenly find yourself unemployed or facing an unexpected financial emergency.
I recommend being proactive about RAP instead of waiting until you miss a payment. Once you miss a payment, it could hurt your eligibility for RAP and may also be marked down as a missed payment on your credit report, which isn’t good.
The terms you’ll receive for your RAP will differ based on several factors, such as:
- Your current monthly income
- Whether or not you’re employed
- The current balance of your student loans
Loan default typically occurs after you’ve missed 270 days’ worth of payments on your loan. At this point, the lender may decide to sell your student loan to a debt collection agency.
Unfortunately, you may not be able to receive RAP if your federal student loan is in default status.
At this point, your best option is to enter a loan rehabilitation program with the National Student Loan Service Centre.
Loan rehabilitation is a process that allows borrowers to bring their account current by adhering to a strict repayment schedule. If you continue to make timely payments for the specified period of time, then your loan will be brought current, which can improve your credit score and reduce the negative impact of the defaulted loan.
If you have federal and provincial student loans, your account is in good standing (not in default), and have evidence of financial need, then you’re a great candidate for RAP. Here’s how to apply:
- Contact a representative from the National Student Loan Service Centre (NSLSC) and explain that you’re interested in enrolling in RAP.
- Schedule an appointment with an interviewer.
- Speak with the representative about your financial situation, explain that you’re having difficulty repaying the loan and that you’d like to reduce your monthly payments.
- You may be asked to present supporting documents, such as bank statements or pay stubs, to prove your current income.
- If approved, you’ll begin making reduced payments on your government student loans.
In addition to the federal RAP program, several Canadian provinces also offer their own forms of student loan forgiveness in Canada. Some of the most common include:
- Nova Scotia Student Loan Forgiveness Program
- B.C. Loan Forgiveness Program
- PEI Debt Reduction Program
- Quebec Loan Remission Program
Below, I’ll provide you with a bit more information on each so you better understand what type of aid you’re eligible for.
If you received provincial student loans from Nova Scotia in addition to your federal loans, then you may be eligible to receive partial or even complete student loan forgiveness. If you’re approved, you could be forgiven up to $20,400 worth of debt for up to five years worth of payments.
In addition to showing financial need, you must also have received your loan after August 1st, 2015.
- Forgiveness is only available for your first degree
- You must have student loans issued by the province of Nova Scotia (it’s not applicable to federal loans or loans from other provinces)
- You must have earned your degree within 8 years of enrolling in school
British Columbia has a unique student loan forgiveness program that offers to partially or completely forgive student loan debt for certain graduate majors who agree to work in a publicly-funded facility and help under-served communities.
To receive B.C. student loan forgiveness, applicants must have the necessary credentials and ability to work as a:
- Occupational Therapist
- Medical Lab Tech
- Diagnostic Medical Sonographer
- Respiratory Therapist
- Speech-Language Pathologist
- School Psychologist
- Teacher For Those With Visual/Hearing Impairments
During the five years that you work in the program, the provincial portion of your student loans will be reduced by up to 20% over the five-year period.
After completing five years of work in one of the qualified fields, you’ll be eligible to receive complete or partial loan forgiveness, in addition to forgiveness for interest accrued on the loan.
Prince Edward Island residents who borrow at least $6,000 per year in student loans are eligible for enrollment in the PEI Debt Reduction Program.
This program can forgive up to $2,000 per year in debt for students who were enrolled in school before August 1st, 2018 and up to $3,500 per year for students who enrolled after August 1st. 2018.
Those who graduated before August 1st, 2018, must have applied within one year of graduation to receive debt reduction. However, those who graduated after are allowed to apply for the program within three years after graduation.
To apply, you must provide the following documentation:
- A copy of your degree or diploma
- Your loan statement from the National Student Loan Service Centre
- Your Debt Reduction Program application
Additionally, you must also prove that you were a PEI resident for at least six months prior to applying for PEI’s Debt Reduction Program. You can do this by providing old utility bills, bank statements or having your boss write a letter vouching for you.
Quebec has a fairly straightforward debt forgiveness program. To encourage students to graduate faster and enter the economy, Quebec is willing to forgive up to 15% per year in provincial student loans. Here are the time periods in which you must complete your program:
- College technical program: 27 months
- 3-year undergraduate program: 24 months
- 4-year undergraduate program: 32 months
- Master’s program (no thesis): 16 months
- Master’s program (with thesis) 20 months
- Doctorate program: 32 months
Both part-time and full-time medical professionals who are employed in their field may receive federal student loan forgiveness in Canada. To receive forgiveness, the applicant must:
- Have a federal student loan that’s in good standing (not default)
- Have worked for one year in a remote or under-served community, providing at least 400 hours of service
The current medical professionals who are eligible for this federal student loan forgiveness are:
- Family Doctors
- Family Medical Resident
- Registered Nurses
- Licensed Practical Nurses
- Registered Psychiatric Nurses
- Registered Practical Nurses
- Nurse Practitioner
Bankruptcy provides an escape hatch for those who find themselves drowning in debt or facing insurmountable financial hardship. To receive student loan forgiveness during bankruptcy proceedings, you must have graduated from school at least seven years prior to filing for bankruptcy.
In some cases, the government may make an exception for those who graduated five years prior. For this exception to be made, the applicant must show that the student loan is causing them clear financial hardship.
By now, you should have a better idea about what your options for student loan forgiveness are. To finish up, here are a few quick answers to some commonly asked questions on the topic.
Student loan forgiveness should not affect your credit score. As long as your loan is not in default and you have a good payment history, enrolling in the federal RAP program or a provincial forgiveness program will only reduce the balance of your loan.
However, if your student loan is in default, then your credit may naturally be affected by the late payments, regardless of whether or not you receive forgiveness.
Applying for provincial student loan forgiveness in Canada is usually a quick process. As long as you meet the eligibility requirements, the entire process should take less than a few weeks to process.
If you’ve received student loans from your province or the federal government, then they will be disbursed after you die, so your loved ones don’t have to inherit the debt.
Although the federal government doesn’t offer any programs for complete debt forgiveness in Canada, the RAP program can ease your burden by extending your loan term and reducing your monthly payments.
Additionally, some provinces like B.C., Ontario, Nova Scotia, and PEI offer their own forms of provincial student loan forgiveness.
Looking for a way to stay current on your student loans without applying for forgiveness? Adding a flexible online side hustle as a secondary source of income could help you earn the extra money you need.
Keep on reading to see my list of the best side jobs you can work from home in Canada!