Going to university opens the door to career opportunities and new experiences. But once you’ve graduated, you are faced with the reality of paying back the student loans that got you through. You will initially have a six month non-repayment period, where no interest will be applied. But once the interest-free period has passed, the party’s over. You then need to face the reality of making payments on your national student loan.
Canadian tuition fees have continued to rise for the 2021/2022 academic year, up 1.7% from last year, leaving many in significant student debt after graduation. Student debt can feel overwhelming, especially when there is significant accrued interest. If you find yourself struggling to repay your student debt, you may consider the loan Repayment Assistance Plan (RAP) through the Government of Canada. The Repayment Assistance Plan can help to reduce your monthly repayment based on your financial situation.
What is the Repayment Assistance Plan (RAP)?
If you’re struggling to keep up with your student loan repayments, there is support available to help make your repayments feel more affordable. You can apply to have the government pay towards your loan repayments through a Repayment Assistance Plan. You can either apply for the Repayment Assistance Plan (RAP) or the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD).
Repayment Assistance Plan (RAP)
RAP is a repayment program that can help you to repay your student loans over a maximum of 15 years. There are two stages to the Repayment Assistance Plan:
- Stage one, known as “Interest Relief” is available for up to five years, or until you are 10 years out of school, whichever comes first. You will make an affordable monthly repayment based on your income and family size, which will go first towards repaying your loan principal (the initial size of the loan). If your repayment is large enough, the remainder will go towards paying monthly interest. The government will then cover all monthly interest that isn’t covered by your payment.
- Stage two, known as “Debt Reduction” occurs after you have received RAP stage one for a minimum of 60 months, or been out of school for 10 years, whichever comes first. During the six month term of RAP stage two, you will make either no payment or a monthly payment, depending on your income and family size. Your payment, if any, will go first towards repaying your loan principal and any remaining money will go towards paying monthly interest. The government will cover all monthly interest and principal amounts not covered by your payment. As long as you remain eligible for RAP, your student loan balance will be gradually paid off and your repayment obligations will not exceed 15 years, or 10 years if you have a permanent disability.
Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD)
- If you live with a permanent disability, you may be eligible for the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD). RAP-PD works similarly to RAP, but offers accelerated loan repayment for borrowers with a permanent disability. If you are on RAP-PD your loan balance will be reduced to zero after 10 years (instead of the usual 15 years), after which you will be free from your student debt obligations.
Am I eligible for a loan Repayment Assistance Plan (RAP)?
To be approved for a RAP, you must meet the following eligibility criteria:
- You must reside in Canada (or be on an international internship, or be a reservist deployed abroad).
- You must have graduated from or left school at least six months ago, meaning your loans are in repayment.
- You must be up-to-date on your loan payments.
To qualify for RAP-PD, you must fulfill the following conditions:
- Your permanent disability has been assessed and recognized by the Canada Student Financial Assistance Program, and
- You are eligible for the Repayment Assistance Plan (RAP).
How to apply for a Repayment Assistance Plan (RAP)
You can apply for a Repayment Assistance Plan online through your National Student Loans Service Centre (NSLSC) account.
It’s important to note that re-enrolment for a loan repayment assistance plan is not automatic and if you want to continue using the plan, you must re-apply every six months.
What happens to my student loans if I file for Bankruptcy?
If you’re finding your student loan debt too much to manage, you may be considering filing for Bankruptcy. Bankruptcy is a legal process governed by the Bankruptcy and Insolvency Act, designed to help you eliminate your debts and start afresh.
The only way you can file for Personal Bankruptcy is through an LIT. When debt feels unmanageable, Bankruptcy may feel like a suitable option for you. But it’s important to remember that while Bankruptcy is one way to clear your debts, it isn’t the only option. You can discuss your personal situation with an LIT who can help you make the right choice for your finances.
While you can choose to file for Bankruptcy to help eliminate your student loan debts, but there are conditions that must be met:
- To discharge your student loan under the Bankruptcy process, you need to have been out of school, full or part time, for seven years or more.
If you have been out of school for five years or more, but less than seven years, you can apply to court to have your student loans included as part of your Bankruptcy. For the court to agree to your student loan being discharged, they must:
- Be convinced that you have and will continue to experience financial hardship because of your student loan debt, even after the discharge of your debts.
- Believe that you have made reasonable efforts to repay your student loans.
Ready to take control of your student debt?
If you are struggling to manage your student debt and are unsure on the best route to take, discussing your options with a Licensed Insolvency Trustee (LIT) can help to take some weight off your shoulders. LITs are trained and licensed by the federal government to offer practical advice on all types of debt solutions, from credit counselling to Bankruptcy.
Contact one of our Licensed Insolvency Trustees today for a free consultation.