Can debt consolidation help with Canadian student loans?

How much does post-secondary education cost in Canada?

For many Canadians, post-secondary education can be the key to achieving their career goals. While schooling in Canada isn’t as expensive as it is in, say, the United States, it can still be much more than some people can afford. It is difficult to estimate the total costs of post-secondary education as there are many factors to consider, including: 

• Which school you attend;
• whether you’re pursuing an undergraduate or graduate degree;
• whether you live on or off campus;
• your eligibility for assistance programs;
• whether you’re a resident of the province you study in;
• field of study;
• scholarships and busaries;
• and living expenses (food, housing, transportation and so on).

Recent data from the federal government places the average cost of post-secondary tuition for Canadian students at roughly $6,800 per year for undergraduate programs, and $7,400 for graduate programs. However, the cost can be much higher depending on what you study. These figures also don’t factor in program length, the cost of textbooks or living expenses.

How student loans work in Canada

There are three types of student loans in Canada:

1. Federal loans are fixed-rate or variable-rate government loans offered through the Canada Student Loan Program (CSLP). The federal government also provides non-repayable grants to eligible students who can demonstrate financial need. Unlike with a Canada Student Loan, you don’t have to pay back the grant, which is essentially free money for students.
2. Provincial and territorial loans are for eligible students residing in each province or territory. You may be able to obtain a provincial student loan along with your Canada Student Loan. It’s important to note that different provinces have different rules for determining loan eligibility, amounts and repayment, as well as different loan interest rates.
3. Private student loans or lines of credit can be obtained through banks or other lenders if the federal and provincial loans aren’t enough to cover tuition. These loans often have higher interest rates than government loans, and they will have different repayment terms, so read the fine print carefully.

The latest student loan updates

There have been some recent changes to student loans that may help you to repay your school debt. As of April 2023, the federal government eliminated interest on existing and new Canada Student Loans (if you owed interest prior to April 2023, you still have to pay it). However, interest rates may still apply on provincial and territorial student loans. In addition, the federal government is increasing the maximum amount of forgivable Canada Student Loans by 50% for doctors and nurses working in rural communities. The government has also increased the maximum amount of student grants by 40% and raised the loan amount you can receive per week of study from $210 to $300 for 2023.

Is student debt considered “bad debt”?

Student loan debt isn’t a bad idea as it can be an investment in your future. However, it’s important to not take on more debt than necessary. While in school, try to supplement the cost of your education by applying for scholarships and bursaries. If an internship is part of your studies, look for one that is paid. If possible, work part-time during the semester and full-time during summers—in doing so, you will take on less debt.

It’s good you are thinking about your budget now, before starting school. Taking on student loan debt is not “bad” if the end result makes your loan worth the investment—such as achieving your dream job. 

How to keep costs down while in school

A way to avoid student debt is to practice smart money management. Here are some things to consider that could help decrease your debt load by the time you graduate: 

1. Create a budget
   One way to manage debt as a student is to create and follow a monthly budget. Start by writing down your income and current liquid assets (i.e., the money available to you in your bank account). If you’re not currently earning an income, this amount may be all you have to work with for your entire post-secondary education. Next, allocate set amounts of your income and/or savings to cover expenses, including how much you pay for various bills and items each month. 
   Does your spending outpace your income? If so, consider cutting or reducing expenses you won’t often use as a student, such as subscription streaming services or a gym membership (there may be an option to join the gym at your school for free or a reduced rate).

2. Pick a campus close to home
   Instead of living on campus, it may be more affordable to continue living with your parents and commute from home. A bus pass is less expensive than campus housing. And if you’re fortunate to have access to a car as a student, a parking pass and the cost of gas might be cheaper than residence, too. Alternatively, consider looking for shared apartments that are off-campus but still close by. While rooms near school may still be costly, they’re usually less expensive than a dorm.

3. Choose the balance between tuition cost and employability
   Consider picking a field of study that has a relatively low tuition cost but a high degree of employability, so you’ll have less debt to repay and better odds of getting a job after school. You can learn more about an occupation you are interested in, such as its wages, outlooks, education and skills needed. Of course, you should also pursue a career that interests you, but it’s smart to research your job prospects. 

What to do if you can’t pay back your student loan

If you are unable to pay back your student loan, there are a few options to consider:

Student Loan Repayment Assistance: The federal government’s Repayment Assistance Plan (RAP) helps borrowers manage student loan debt by paying back what they can reasonably afford. Learn more about RAPs, eligibility and how to apply. 

Debt consolidation program: A debt consolidation program involves combining multiple debts or loans into one new loan set at a lower interest rate or better terms. You’ll still have to pay back the debt, but monthly payments will be at a reduced interest rate. However, this is only an option if the loan is already in default and you are not eligible for RAP. 

Consumer proposal: Similar to debt consolidation, a consumer proposal combines a person’s debts into a single fixed monthly payment. In addition, a consumer proposal eliminates interest charges and reduces the outstanding principal. This is a form of debt forgiveness, meaning you’ll only need to pay back a portion of your overall debt. However, it’s important to note that student loans are only eligible for discharge in a consumer proposal if it’s been at least seven years since you left school.

Bankruptcy: As with a consumer proposal, if you declare bankruptcy seven or more years after the date on which you stopped being a full-time or part-time student, your student loan debts will be eligible for discharge. However, this period can be reduced to five years if you show proof that repaying the loan will result in “undue hardship.” Learn more about student loans and bankruptcy.

Taking on student loan debt is difficult for many Canadians, but it can be worth it in the long term if it’s an investment in your future career goals. Sam, you have a few options to explore, and it is great that you are considering your family’s financial well-being in the process.

Get debt relief with Credit Canada

Sam, if you need guidance and support with setting up your budget, talking through your options, managing your debt or any other credit inquiries, Credit Canada offers free credit counselling services from certified credit counsellors to support you through various debt-relief channels. Contact one of our certified non-profit credit counsellors today. 

Read more on student debt:

• Are rent loans the answer to rising rent costs?
  The best student credit cards in Canada
• How to afford moving out as a student or young adult
• How to manage money as a student