Student Loans have become the norm as higher education has come to be a prerequisite to earning an average income. With college and university tuition rising, if you desire higher education, loans are simply part of the process. To fund their education, most students borrow from Federal and Provincial student loan programs. According to the Canadian Federation of Students, today's students are the most indebted generation in Canadian history with the average student graduating with over $28,000 of debt. That said, have you ever taken a moment to consider what happens to your loans if you can not pay them off?
With the cost of higher education increasing, so is student loan debt. As a consequence, more and more and more students are finding themselves in difficult situations when paying back their loans. For some, it becomes simply impossible to make payments on their debt and are then forced to consider options such as bankruptcy. Bankruptcy is the surrendering of your assets in return for the discharge of your debt. The process considers all eligible unsecured debts such as credit card debt or unpaid utility bills, not secured debts such as a mortgage which is secured by the home. If you are granted a discharge from bankruptcy, you are released from your obligation to repay those debts.
In Canada, bankruptcies are governed by the Bankruptcy and Insolvency Act (BIA). Student loan debt is discussed under Section 178(1) the BIA where the act stipulates that these debts are not eligible to be discharged if bankruptcy is filed within seven years after your studies end. What this means is that even after going through the bankruptcy process, if your student loans are recently acquired (under 7 years old) they survive bankruptcy and you will continue to be responsible for them. To properly determine the date on which your studies end, it is important to refer to the federal or provincial student loan legislation that is applicable to your loan.
If it has been less than seven years since finishing your studies, the government has other means to assist with the repayment of your loans which do not require bankruptcy. The Repayment Assistance Plan Program, details those options which are available to assist with paying off the loans. These options include a temporary reduction in payments or an extension of the payment period. Another option is called the “Hardship” option where the government would consider reducing the amount of the loan owed. In order to qualify for this option, you would have to prove that the payment of the student debt is causing you undue hardship.
When planning for the future, it is always advised to have a will which will detail how your assets will be distributed. Typically, upon death, the executor of an estate is legally required to pay off all debts before distributing the remaining estate. With student debt getting larger and larger, you can appreciate that it could represent sizeable amount of the debt left behind upon death. That said, however, student loans debts are forgiven by the government upon your death.
Federal student loans are governed by the Canada Student Loans Act. Section 12(1) of this act describes the process under the heading titled “Death or Disability of the Borrower”. It says that upon the borrower’s death, the obligation to pay the Federal student loan terminates. When forgiving the loan, the government will pay out any lender who held any rights against the borrower in respect to the student debt.
Provincially, the termination of the debt will depend on the specific legislation or policy governing the provincial student loan. In Nova Scotia, the Government Collections department is responsible for overseeing the collection of unpaid provincial student loan debt. Upon the death of the borrower, the lender (currently Resolve NS) would send the Department a copy of the death certificate. The death certificate is filed and the loan is forgiven upon its receipt.
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By: Amanda Toulany, J.D.
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