Financial First Aid
Both government student loans and personal student loans must be repaid. Payments usually begin six months after you cease being a full-time student.
While you are repaying your government student loan, you will be allowed to claim a 17 percent tax credit on the interest portion of the amount paid on your government student loan each year. Typically, a statement outlining all interest will be mailed annually.
Please note that "government student loan" refers specifically to a loan made to you under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial government laws for post-secondary education. Consumer loans, such as a line of credit (e.g. Student RCL), or a student loan that has been combined with another kind of loan, are not eligible for this tax credit.
If you cannot make payments to your student loan, contact your financial institution immediately. Many governments have programs available to help you manage your student debt. Your lender will take the steps necessary to recover the debt which may include reporting you to a credit agency, using a private collection company, or taking legal action if you fall behind on your loan payments. Under legislation introduced in 1998, you cannot avoid repaying your government student loans through bankruptcy for a period of ten years after the end of your studies.
Understanding Your Responsibilities
Once you have received a government student loan, it is your responsibility to:
- understand and respect the terms and conditions spelled out in detail in your loan agreement
- tell your lender and the student financial assistance officer at your school or provincial student assistance office of any changes in your situation such as a change in name or marital status, a change in your status as a full- or part-time student, or a change of address
- provide your lender with proof of enrollment for each study period that you are enrolled, even if you are not applying for a new loan
- keep track of the amounts you borrow each year
- see your lender and complete a Consolidated Student Loan Agreement within six months of ceasing to be a student
- repay your student loan. If you are a full-time student, you will be required to start repayment of your student loan on the last day of the seventh month after ceasing to be a student. However, you can start repayment earlier if you are in a position to do so. If you are a part-time student, you are required to make interest payments even while enrolled, and start full repayment on the last day of the seventh month after ceasing to be a student
Interest Relief - Debt Reduction in Repayment
If you have trouble repaying your loan, the Interest Relief Plan may help you. In this case, the Government of Canada may pay the interest on your loan. Discuss your situation with the lending institution that issued your loan and perhaps your lender may agree to revise the repayment terms. Moreover, the Government of Canada and/or the provincial governments offer an Interest Relief Plan and debt reduction to help if you have difficulty making your loan payments because of low income.
What Is Interest Relief?
While you are on Interest Relief, the government pays the interest on your loan. Interest Relief is normally approved for six-month periods up to a maximum of 30 months throughout the lifetime of the loan.
Where Can I Apply?
Information and application forms are available from the lender holding your student loans, from Human Resources Development Canada, or from your provincial or territorial student assistance office.
Who Is Eligible?
To be eligible for Interest Relief, your total family income must be below a level determined by the size of your family and the size of your monthly loan payment. Special circumstances may also qualify you for Interest Relief. For example, if you have had to pay for unexpected emergency health-related expenses or emergency home repairs, you may be eligible.
Provided you meet the income conditions, you are eligible to apply if:
- you are currently living in Canada or on a government-sponsored international internship
- you have signed a Consolidated Student Loan Agreement
- you have not already received Interest Relief for the maximum period allowed (30 months)
- you have not defaulted on any government loans for which the government has already reimbursed your lender
Coping With Financial Hardship
If you continue to have difficulty making your loan payments after 30 months of interest relief, discuss your situation with your lending institution or your student aid office.
Other Helpful Options
Extended Interest Relief is available should you exhaust the initial 30 months of interest relief. You can request that your lending institution extend the loan repayment period to 15 years. This would lower your monthly payments by nearly 25 percent at current interest rates.
If, after extending the repayment period to 15 years, you remain in financial hardship, interest relief may be extended during the five years after leaving school.
In the event that you remain in financial difficulty, the federal government may reduce your loan principal if your annual payments exceed a given percentage of your income. The maximum amount of debt reduction will be $10,000 or 50 percent of the principal of your government loan, whichever is less. To qualify, five years must have passed since you completed your studies and you must have exhausted interest relief. Some provincial programs also offer debt reduction.