|Federal||Loan Forgiveness for Family Doctors & Nurses|
|Repayment Assistance Program (RAP)|
|Provincial||British Columbia Student Loan Forgiveness|
|Quebec Loan Remission Program|
|Saskatchewan Loan Forgiveness for Nurses and Nurse Practitioners|
|PEI Debt Reduction Grant Program|
|Nova Scotia Student Loan Forgiveness Program|
|Private||Debt Consolidation Loan|
|Consumer Proposal and Bankruptcy|
Canadian student loans are broken into two categories; governmental and private. Furthermore, governmental loans can be dissected into federal and provincial loans. This results in three types of student loans. Private student loans generally don't offer student loan forgiveness programs because they are profit-oriented lenders. On the other hand, your government want to incentivize economic growth and education through targeted student loan forgiveness programs.
These governmental forgiveness programs happen on the federal and provincial levels. They are typically incentives for qualified professionals to relocate to areas where they're needed. For example, the federal government offers loan forgiveness for family doctors and nurses. The catch is that they must relocate to rural areas where healthcare systems are overwhelmed.
In addition to incentive-based student loan forgiveness, many programs are offered to low-income borrowers. For example, the federal repayment assistance program (RAP) helps qualified low-income borrowers remove or cap their monthly loan payments at a 10% maximum of their income.
Some provinces also offer additional programs on top of federal options. This article will walk you through each program and its eligibility requirements. Furthermore, it will explain how to apply to the programs and the top alternatives. Continue reading to find the top ways to reduce your student debt.
Federal student loans begin six months after graduation or leaving school. This grace period is designed to provide former students with the opportunity to seek out employment.
Unlike private student loans, federal student loans have strict bankruptcy prevention. For example, you can’t declare bankruptcy on federal student loans until seven years have passed since you left school. This contrasts private loans which are more flexible with bankruptcies and consumer proposals. For federal student loans, you’ll need to seek a student loan forgiveness program while you wait for the seven years to pass. This section will walk you through the federal options available.
This generous program is specifically crafted to provide loan forgiveness for medical specialists working in under-served rural or remote communities. Qualified doctors can earn up to $40,000 in loan forgiveness ($8,000 annually). Consequently, nurses can earn up to $20,000 ($4,000 per year). However, a recent budget announcement proposed to increase these amounts to $60,000 and $30,000 respectively.
The loan forgiveness will only apply to the federal portion, not provincial or private student loans. This means you won't benefit if you refinance your federal student loans to a line of credit.
You'll receive the forgiveness after working a minimum of 400 hours across 12 months. While you can work for multiple employers, it must remain in rural communities. You can use the postal code lookup tool to determine area eligibility.
You must meet the following eligibility criteria to receive loan forgiveness. In addition, you must re-apply every year.
The Repayment Assistance Program (RAP) is a federal program that helps qualified low-income borrowers reduce monthly payments or remove them altogether. To qualify, you must earn an income below a threshold determined by your number of family members. For example, independents must make an annual income below $40,000, whereas you must earn below $57,480 with a family of three. These thresholds are indexed to Canadian inflation rates meaning they'll change annually. You'll also have to re-apply every six months to remain eligible.
Having an income below the threshold means you will only need to pay your student loan once you exceed the income level. During this phase, the government will cover a specific portion of your loan depending on your sub-variant.
a) RAP: The program will cover interest payments above a certain amount. This means that the government will pay for some of the interest but not any of the money that you borrowed (the principal). After 60 months of RAP or ten years after school, the government will start to pay your principal too.
b) RAP-D (Disability): The program will cover principal and interest payments while eligible.
Once you exceed the income threshold, your student loan payments will be capped at 10% of your income. This means if you're earning $5,000 monthly, your student loan payment can be at most $500.
You'll have to re-apply to RAP every six months and meet these eligibility requirements;
If you go back to school, you can benefit from a federal program that pauses interest instalments on your loan. This means you'll have a reduced monthly payment because you'll only be paying off the principal portion.
Making the same monthly payment will make your student debt pay off faster. To apply, you'll need to log in to your NSLSC account and confirm that you are studying at a qualified institution.
In addition to federal programs, some provinces offer loan forgiveness for qualified borrowers. Generally, these programs provide a certain amount of loan forgiveness depending on your income and years of study in the province. For example, B.C. offers an annual 20% loan reduction for certain professionals who remain in the province.
It is essential to research the programs available in your province before deciding which option is best for you. Additionally, remember that each program has its own set of eligibility criteria that must be met to qualify. Be sure to familiarize yourself with these before applying. This section will provide a broad overview of each program and direct you to the resources to learn more.
Recent graduates working in sought-after occupations may be eligible to receive loan forgiveness through the B.C. Loan Forgiveness Program. This program forgives up to 20% of provincial B.C. debt annually for up to five years. The program only applies to B.C. provincial student debt, not federal or private.
You must demonstrate a minimum number of in-person hours worked at a publicly-funded facility to receive benefits. There are two categories of eligible occupations;
The annual forgiveness percentage changes with the number of hours worked. For example, working less than 100 hours results in 0% forgiveness. Working 100-249 hours provides 10%. The amount increases up to a maximum of 20% annually for exceeding 400 hours.
The Loan Remission Program is designed to forgive 15% of a student's loan debt for completing their studies within a maximum period. The time varies with each program but typically ranges from 16 to 32 months. This means that finalizing your program within the prescribed timeframe results in loan forgiveness. Surpassing this means you won't qualify.
Applications must be submitted within three years after completion of the relevant program to qualify. In addition, the remission is taxable, meaning it will be included in your income taxes.
If you're a nurse or nurse practitioner in Saskatchewan, this program may help you forgive 20% of your student debt annually. This maximum is $4,000 annually, for a total of $20,000 after five years. As with the federal program, you must practice in an underserved rural community within the province.
You'll need to work 12 consecutive months with a minimum of 400 in-person hours to receive the forgiveness. At the end of the 12 months, you'll have a 90-day window to apply.
Prince Edward Island's Debt Reduction Grant program offers graduates an extra incentive to stay and work on the island by helping with their provincial student loan repayment. The amount of money you can receive through the grant varies depending on your yearly borrowings from the PEI Student Loan Program and can be up to $3,500 per year.
Applications are accepted four times per year. You'll have to submit a copy of your degree, diploma, certificate, or unofficial transcript. Grants will be paid directly to your provincial student balance.
For those who have studied at a Nova Scotia university, the Nova Scotia Student Loan Forgiveness Program can erase your entire provincial student loan debt. Graduates of non-professional undergraduate programs may be eligible to receive up to five years of loan forgiveness, with maximums reaching $20,400.
Assessment is done automatically when your school notifies the province about graduation. You will receive a letter detailing how much will be forgiven if you qualify.
As mentioned, private student loans generally don't have loan forgiveness programs because for-profit lenders provide them. However, there are many consumer protection laws to protect you from private student loans that don't apply to governmental options.
Mainly this includes consumer proposals, debt settlement, and personal bankruptcy. For example, declaring bankruptcy will not discharge your governmental debt if you are within seven years of graduating. This is not the case with private student loans.
While these options can reduce your private student loan, they have long term effects. This includes lower credit scores, increased interest rates on future loan applications, and potential collections lawsuits. Before considering the latter alternatives, begin with a debt consolidation loan.
Debt consolidation is a way to refinance existing debt to lower interest rates, reduce monthly payments, or both. If your private student loan has a high-interest rate and you have good credit, you may be eligible for a low-interest loan to pay off the original debt.
Sometimes, you may receive a lower interest rate on a debt consolidation loan than your governmental loans. However, transferring governmental student loan debt to private loans will remove your eligibility for forgiveness programs.
Financial institutions like banks generally provide these loans, but some online lenders specialize in debt consolidation. Consolidating your debt can result in a lower monthly payment and make loan repayment more manageable.
Debt settlement is negotiating with your creditors to reduce the debt you owe. When done correctly, this can lower monthly loan payments and help avoid bankruptcy.
However, it's important to note that not all creditors will accept debt settlement offers. Also, if accepted, there may be severe negative consequences, including higher interest rates on future loan applications and a damaged credit score.
Sometimes, you may not be eligible for a debt consolidation loan, or the payments may still be too high. In this case, consider filing a consumer proposal or bankruptcy. Both of these options can reduce your debt drastically and put an end to collections lawsuits.
A consumer proposal is a legally binding process where you agree to pay creditors a certain amount. This is usually less than the total amount of debt owed. Bankruptcy is more extreme, as it legally erases most unsecured debts like credit card bills and private student loans. It is not recommended unless absolutely necessary.