Post-secondary education has the potential to help many people realize their ambitions and full potential for a career of their dreams. People of all ages can acquire the knowledge and abilities necessary to be successful in their particular career by enrolling in one of the many educational institutions that offer degrees and diplomas. However, the cost of post-secondary education can be costly, and for some individuals trying to make ends meet,  they just can’t afford it.  This is where student loans and grants come in. Student loans and grants can be extremely helpful in situations like this.

After getting approved for a student loan, you attend post-secondary and you complete your course of study. Now that you are completed and need to start paying back your student loan. You find yourself in a situation where you are unable to keep up with your monthly payments and are now defaulting on your student loan payment. This is when the lender has the right to send your account to collections. If it is with the government OSAP and you are not paying them, they also have the right to send it to collections and take any CRA entitlement to offset the balance owing to them. The key is to understand how to pull oneself out of trouble and how to request relief before you ever slip into the feared default position on your student loan. Although it may seem like the worst-case scenario, defaulting on your student loan is actually a reality for thousands of people each year.

What is a Student Loan?

A student loan is a loan that is issued by the government (either the federal government or a province) to pay for the expenditures associated with post-secondary education, such as university or college tuition.

When you apply for a student loan, you are not given the option to select the amount of money that you wish to borrow. Rather, the sum of your student loan is determined by some factors relating to your current financial statuses, such as your salary, the number of people who depend on you financially, and the cost of your education.

Student Loan Debt in Canada

Student loan debt is estimated to be $26,075 on average, according to estimates. Seventy-five percent of people living in Canada who have outstanding student loan debt owe money to the federal government, while approximately 36 percent have outstanding private student loan debt.

There is a six-month grace period for all post-secondary students before they must begin making student loan repayments. Students who fall short on their loan payments face serious penalties, and it’s crucial to be aware of those consequences. Credit bureaus typically receive a report about students who are delinquent on their student loans. As a result, your credit rating may be negatively impacted and you may not be able to acquire other types of loans in the future.

If you’re drowning in student loan debt, a federal repayment assistance program may be able to help. But if you’ve fallen behind on your student loan payments by more than 90 days, you won’t qualify for this option and should look into other ways to get out of debt.

What Happens When Your Student Loan is in Collections?

There are two basic categories of student loans: federal student loans and private student loans, the latter often involves opening a student credit line with a financial institution. You should prepare yourself for calls from a collection agency if you have a private student loan due for repayment. Legal action can also be taken against you if your student loan debt is within the Statute of Limitations. Limitation periods in Ontario are two years.

Another option is to use a federal student loan. When it comes to these debts, the reaction of CRA collections on student loans might be significantly more severe. Typically, government student loans are divided into two parts: one for the province and one for the federal government. The CRA will likely be contacted if you haven’t made any payments on your federal student loan for nine months or more.

If you have fallen behind on your provincial student loan payments for a significant amount of time, the loan could be turned over to a collection agency. When it comes to the collection, the CRA has a lot of clouts.

Failure to repay student loans could result in the following:

• Add-on charges for interest
• Inability to receive future funds from StudentAid 
• Having a collection agency get in touch with you
• Poor credit score
• Your salary could be garnished
• Property liens
• At the risk of losing future tax refunds
• A court case

When It Comes to Collecting Student Loan Debt, What Legal Authority Does the CRA Hold?

In light of the government’s strength, the CRA’s ability to collect on debts goes well beyond that of any other creditor. Because of this, you must deal with your student loan debt as soon as possible. The CRA does not need to take you to court before seeking a wage garnishment or bank account freeze against you, unlike a conventional creditor.

To put it another way, a conventional creditor can only seize 20% of your salary, the CRA has the power to seize the entire amount. You could be denied any government benefits or credits. Even your tax refund, including your GST refund, may be applied to your student loan. Federal student loans, on the other hand, do not have a time limit. As a general rule, when you owe money to someone other than the government, there is a time restriction during which you can be sued by your creditors. They are unable to go beyond this time restriction, the CRA does not have to adhere to a timeframe.

How to Stop Student Loan Collections

Repayment Assistance Plan

Repayment Assistance Plans (RAPs) are available to students who are current on their student loan payments. If you are having trouble making the payments on your student loans, this program, which is aided by the Canadian government, can be of assistance to you. Simply logging in to your account with the National Student Loans Service Centre (NSLSC) will allow you to access the necessary tools for determining the most suitable repayment strategy. If, on the other hand, you have missed multiple payments and are currently behind on your student loans while the CRA is working to collect on them, you may need to look for an alternative solution.

Consumer Proposal

By submitting a consumer proposal, you can get a reduction in the amount of your student loan and get started on the path to a more stable financial future. Any debt owed to the Canada Student Financial Assistance Act can only be included in a consumer proposal if it has been more than seven years since you completed your education. However, the seven-year rule does not apply to borrowers of private loans. Consumer proposals are an excellent way to reduce your debt by as much as 80 percent and can save you a lot of money. As an alternative to filing for bankruptcy, a consumer proposal provides several benefits, one of which is the opportunity to keep your assets. A temporary halt will be placed on the proceedings as soon as your proposal is submitted. This will provide you with immediate protection against collections efforts by the CRA regarding student loans, including any wage garnishments.

Declare Bankruptcy

If a consumer proposal does not seem to be the best option for your current financial situation, filing for bankruptcy might be the next choice for you. When it comes to any debts that are funded by the government, the seven-year rule will be enforced once more. This makes it possible to start over financially, free from the strain of worrying about past-due debt payments or being harassed by collection calls. A stay of proceedings will be triggered upon filing for bankruptcy, providing quick coverage from collection calls and wage garnishments.

Final Thoughts

Nobody plans to default on their payments of their student loans, but life happens. The tips above can help you in preventing your student loan from being in the collection or heading there. However, you may need the guidance of a financial expert to help you make the right decision. Book an appointment with our qualified debt experts, and they will walk you through getting yourself out of your current situation.