Student Loan Debt Relief in Canada: Your Options

TL;DR

Student loan debt relief in Canada depends on whether your loans are government-issued or private, and how long ago you left school. Government student loans can only be discharged through a consumer proposal or bankruptcy if you have been out of school for 7 or more years. Before that point, the Repayment Assistance Plan (RAP) can reduce payments based on income. Private student loans can be included in insolvency proceedings at any time.

The 7-Year Rule Explained

Under section 178(1)(g) of the Bankruptcy and Insolvency Act (BIA), government-issued student loans are not automatically discharged in a bankruptcy or consumer proposal unless you have ceased to be a student for at least 7 years. This is often called the "7-year rule."

How the 7 years is calculated:

• The clock starts on the last day you were registered as a full-time or part-time student at any recognized educational institution
• It does not matter when you took out the loan — only when you last attended school
• If you returned to school after your initial studies, the clock resets

After 7 years: Government student loans are treated like any other unsecured debt and can be fully included in a consumer proposal or discharged in bankruptcy.

Between 5 and 7 years: In cases of financial hardship, you can apply to the court for early discharge of student loan obligations. The court considers your financial circumstances, whether you acted in good faith, and whether you attempted to repay the loans.

Government Repayment Assistance Programs

If your student loans are less than 7 years old, several programs can help make payments manageable.

Federal Repayment Assistance Plan (RAP)

RAP adjusts your Canada Student Loan payments based on your family income and size:

Stage 1 (first 10 years or until age 55):

• Payments are capped at an affordable amount based on income
• If your income is low enough, your required payment may be $0
• The government covers the interest portion that exceeds your payment
• You must re-apply every 6 months

Stage 2 (after 10 years of RAP or from age 55):

• The government covers both principal and interest beyond your affordable payment
• Your loans are guaranteed to be fully repaid after 15 years total in RAP

Provincial Assistance Programs

Many provinces offer parallel repayment assistance for provincial student loans:

• Ontario: Ontario Student Assistance Program (OSAP) repayment assistance mirrors federal RAP
• British Columbia: BC Student Loan repayment assistance available through StudentAidBC
• Alberta: Alberta student loan repayment assistance through the province

Check with your provincial student aid office for specific programs and eligibility.

Interest-Free Status

As of April 2023, federal Canada Student Loans carry 0% interest permanently. This was a significant change that eliminated a major burden for borrowers. Provincial interest rates vary — contact your provincial student aid office for current rates.

Private Student Loans

Private student loans (from banks, credit unions, or private lenders) are treated differently:

• No 7-year rule: Private student loans can be included in a consumer proposal or bankruptcy at any time
• No government assistance programs: RAP and other government programs do not cover private loans
• Higher interest rates: Private student loans typically carry higher interest rates than government loans

If you have a mix of government and private student loans, your Licensed Insolvency Trustee can structure a consumer proposal that includes the private loans immediately while addressing the government loans based on your timeline.

Options Based on Your Timeline

| Time Since Leaving School | Government Loan Options | Private Loan Options | |---|---|---| | Less than 5 years | RAP, provincial programs, negotiate with lender | Consumer proposal, bankruptcy, negotiate | | 5 to 7 years | RAP, hardship application to court | Consumer proposal, bankruptcy, negotiate | | 7+ years | Consumer proposal, bankruptcy, RAP | Consumer proposal, bankruptcy, negotiate |

When to Consider a Consumer Proposal

A consumer proposal makes sense for student loan debt when:

• You are 7+ years out of school and government loans can be included
• You have significant private student loan debt alongside other debts
• RAP payments are still unaffordable after accounting for all your other obligations
• You have other unsecured debts (credit cards, lines of credit) in addition to student loans

Use our consumer proposal calculator to see what a combined proposal might look like with all your debts included.

Strategies While Waiting for the 7-Year Mark

If you are approaching the 7-year mark with significant government student loan debt:

1. Enroll in RAP immediately to reduce or eliminate payments in the interim
2. Address other debts first — you can file a consumer proposal for credit cards, lines of credit, and private student loans while continuing to manage government loans through RAP
3. File a new consumer proposal or amend an existing one once you pass the 7-year mark to include government student loans
4. Keep records of your last date of attendance — you will need this documentation

Common Misconceptions

"I can never discharge my student loans." This is false. Government student loans are dischargeable after 7 years, and private student loans can be discharged at any time. The 7-year rule is a waiting period, not a permanent exemption.

"RAP will hurt my credit." RAP is a government repayment program, not a default. Being on RAP does not negatively affect your credit report as long as your required payments (even if $0) are being made.

"I should ignore my student loans until 7 years passes." This is risky. If you default on government student loans, CRA can garnish wages and intercept tax refunds. Use RAP to maintain your loans in good standing while you wait.

Take our debt relief quiz to see which combination of options fits your student loan situation, and review our guide to consumer proposals for more detail.

FAQ

Can I include OSAP debt in a consumer proposal? Yes, if you have been out of school for more than 7 years. OSAP loans are government student loans and follow the same 7-year rule as federal Canada Student Loans. If you are within 7 years, you can still file a proposal for your other debts and manage OSAP separately through RAP.

What if I went back to school and the 7-year clock reset? The 7-year clock resets to the last date you were a registered student. If you returned to part-time or full-time studies, the clock starts over from your most recent last day of attendance. This can be frustrating, but RAP remains available during the waiting period.

Does the 7-year rule apply to professional student lines of credit? No. Professional student lines of credit from banks (such as those for medical, law, or dental students) are private lending products, not government student loans. They can be included in a consumer proposal or bankruptcy at any time.

Can I negotiate directly with the National Student Loans Service Centre? The NSLSC has limited ability to negotiate outside of formal programs like RAP. If you are struggling, applying for RAP is typically more effective than attempting direct negotiation. For amounts in collections, CRA handles collection and they rarely negotiate settlements outside of insolvency proceedings.

Sources

• Government of Canada — Repayment Assistance Plan
• Bankruptcy and Insolvency Act, Section 178(1)(g)
• Office of the Superintendent of Bankruptcy Canada (OSB)
• Financial Consumer Agency of Canada — Student Loans