According to Statistics Canada, the average graduate finishes school with more than $26,000 in student debt. According to the Canadian Student Loan Program it takes an average of 10 years to pay the loans off in full.
But what happens when you are unable to repay your student loans? Mark Marshall, Licensed Insolvency Trustee with Allan Marshall & Associates, talks about all aspects of student loans. He answers the questions:
- When can I include my student loans in a Bankruptcy or a Proposal?
- Why do I need to confirm my end of study date?
- Will I qualify for a student loan if I am or have been bankrupt?
- How do I keep my student loan in good standing?
- What role does credit counselling play after I have been discharged?
Licensed Insolvency Trustees are federally regulated and approved by the Canadian government. With their extensive knowledge of financial services you can be assured that you are getting the best qualified advice.
Read the Transcript
Wayne Kay 0:04
Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to be talking about student debts. And that’s a big issue. That’s something that a lot of people are definitely struggling with.
And to find out all about it, we’ve got Mark Marshall joining me from Alan Marshall & Associates Licensed Insolvency Trustees in New Brunswick, Nova Scotia and Prince Edward Island. Mark, welcome back to the show.
Mark Marshall 0:34
Wayne I should also point out that we just recently opened offices in Alberta as well.
Wayne Kay 0:38
Oh, terrific. Okay, expanding – that’s quite the jump going all the way to Alberta?
Mark Marshall 0:44
I’m originally from Alberta. I was born in Alberta. So I just kind of seemed like the logical spot for us to venture to next.
Wayne Kay 0:50
There are different laws when it comes to the different provinces, right?
Mark Marshall 0:54
There are, yes. They’re not that different. There’s just fine little details that you have to be aware of when chatting with people from different provinces and again, we’ve gotten up to speed. Speaking to some of our lawyers in Alberta and kind of aware of what those little incricities will be.
Wayne Kay 1:15
What one thing that is common between all over the Maritimes and through the prairies is, student debt. I really wonder if we’re seeing higher student debt than ever before? I would think so.
Mark Marshall 1:28
I think I would say yes. I wouldn’t say that it’s because somebody is attempting, or students or prospective students are necessarily borrowing more than they did in the past. I think just the cost of school, the cost of life, the cost of being a student has gone up.
Your standard course, 25 years ago, your standard university course might have cost you $2,500. Now, it’s probably $7,500 to $10,000 for a semester. And so of course it forces students to, to reach out for whatever means they can get their hands on it. So, a student loan, whether it’s from the National Program, or from their provincial program, yes, students are borrowing more money to get the same education.
Wayne Kay 2:17
Yes, I’ve just got through this, with my two kids – both have graduated. And it’s extremely expensive, getting them through secondary school, post secondary school. And it’s the living expenses, really, that was what I was surprised with.
Mark Marshall 2:33
Yes, it’s amazing. We know that the cost of living is going up, with the pandemic and inflation – the cost of living is going up. Rents in some of the larger centers in Canada, that the universities are located in – Halifax, Toronto, Calgary, Vancouver, finding basic housing is not very affordable.
So let’s say that you land in UBC, or you land at Dalhousie in Halifax – well great, you’ve got accepted to the program, and now you have got to find a way to pay to live in that center.
Wayne Kay 3:10
And then all of a sudden, we have a pandemic that comes along. So here’s that graduate that gets out of school, they don’t get into the career that they were hoping to get into, and maybe some money in trouble comes up because you do have to pay back these loans.
Mark Marshall 3:24
Yes, you do. The expectation, obviously, with a student loan is – your goal is to obtain employment and then be able to pay it back. However, with student loans, depending on a couple things – if you’re experiencing hardship, a Bankruptcy or Consumer Proposal. You can include student loans in both of those proceedings, as long as you’ve been out of school for more than seven years.
Anything shorter than seven years, the debtor or the individual carrying that – you have to take the steps to make sure that you are kind of keeping contact with student loans, keeping them aware of what your financial situation looks like. Also applying for their programs, interest, relief, whatever programs are available, if you’re finding you’re unable to make their minimum payments,
Wayne Kay 4:13
I did hear people talk and they said, Well, student loans are never involved with Bankruptcy, but it’s after seven years.
Mark Marshall 4:23
That’s correct. It’s one of those things. You want as an individual, if you’re considering that as an option – I always suggest this to any client that I chat with – you’re going to want to confirm your end of study date with a National Student Loan center. You want to confirm what they have on record as the end of study day because that is what they’re going to use.
If you’ve been at a school for six years and 11 months and 10 days, it’s not past that seven year mark, then you have a problem. You want to confirm that end of study day because sometimes students will say, Oh, I think I graduated on the 15th of June for my program, and that’s my end of study date. And on the 16th of June, they’re saying, Look this, that’s the date, I’m going to pull the trigger on a proposal or Bankruptcy.
The fact of the matter is what the student loans have on record, generally is the final day of that month. So they would have the 30th of June, for example, as their end of study date. So an individual always wants to confirm their end of study date with national student loans, so that they can kind of determine their best course of action and arm themselves with information.
Wayne Kay 5:34
So if you were to go and put forward a Bankruptcy or a Consumer Proposal, and they were at that six years, 11 months, 25 days. They say no. Can you not just wait the five days until the full seven years and then reapply? Or how does that work?
Mark Marshall 5:51
You wouldn’t be able to reapply. What happens is the issue you’d run into is – there’s a couple things. If you find yourself into a Bankruptcy, if you’ve tripped yourself or triggered yourself into a Bankruptcy, and you’re short of that time frame, then the debt automatically survives under a section of the Act, Section 171 78 that says: This debt survives, because it’s not older than seven years.
Then the individual, if they were doing an assessment with a Trustee, the Trustee generally would ask them for the information, confirm your end of study date. And if it were me, I would be saying, You may consider this option, five days from now. So that we have that seven year mark.
Now, if the mistake is made, what options does the debtor have? Well, at that point in time, technically, you’re at the mercy of the court. You can make an application to the court to ask them to include that debt in the Bankruptcy proposal proceedings. But again, it’s never a clear decision. Anytime you find yourself in a court, it can work in your favor could work against you,
Wayne Kay 6:57
That’s great information. Let’s talk about this – somebody has decided to, because they’re just not making enough money, they can’t make ends meet. And maybe they went through a Bankruptcy or proposal and they said, Enough is enough. I want to go back to school and get myself a career. They’ve got their eyes on some kind of a job that’s going to put them into a great tax bracket. If they are currently in a Bankruptcy or proposal, will they still qualify for a student loan? Or do they have to wait?
Mark Marshall 7:27
Generally they have to wait. It’s not a clear cut answer, because you will find that when you make those enquiries with student loans, a lot of times what they’ll tell you is that they’ll look at every every situation on a case by case basis. But generally speaking, what they’re looking for is for you to be discharged from your Bankruptcy or from your proposal. They’re looking for that discharge to be in the range of about three years before they will qualify you.
But again, with that being said, they do look at things on a case by case basis. And what I’ll read to you is just a line for line item here that I received from the National Student Loan center. And they indicated that anyone that’s over 21 years old who applies for a student loan is subject to a credit check.
One of the questions on my credit check is – have you declared or filed for Bankruptcy or a proposal in the last three years? If the answer is yes, then the application will be denied. However, they do indicate that if you’ve been out for three years that they will consider the application.
They also look at it from our perspective that even if you’re not in a Bankruptcy or proposal, if you have serious credit abuse issues, if you have not paid loans, or you’ve let debt slide into arrears over 90 days, they will also deny your application for student loan. However, they will look at everything on a case by case basis.
So the answer is they likely will deny the first application that an individual that’s coming out of a Bankruptcy or proposal or an individual that has poor credit history – they will deny that application but they will review it upon appeal.
Wayne Kay 9:22
Okay, but I liked all the howevers, there’s a lot of howevers in there.
Mark Marshall 9:28
I know it’s a difficult thing because they can’t give a clear cut answer and historically they will deny but the squeaky wheel gets the grease and I don’t give a perspective. Just as you lead into the question – if an individual is looking to improve themselves, and they’re not looking to necessarily abuse the system, but they have been accepted into a good program, an elite program, a program that’s going to provide them with some financial means – I think student loans regardless of your credit past take the program and your personal situation into consideration when looking at the application. Now, again, broad stroke, they probably may put an X on it the first time, but you got to stay with it and stay on them.
Wayne Kay 10:12
I like that. Okay, that’s good to know. So don’t just walk away when they say no, for the first time, you can keep at them. And yes, I like that squeaky wheel does get the grease. Absolutely.
I think this is a really important point as well – that you’ve gone through the Bankruptcy or proposal, you’ve been terrible with your credit, after you go through that there is credit counseling that you guys offer that they have to go through. This is part of the deal. And I guess this is where they have to understand that it’s a one shot, that they’ve already had these issues, now it’s time to clean it up. Because it really can affect a lot of things that they may not even be thinking about in the future.
Mark Marshall 10:52
And that’s it. It’s part of the process in a Bankruptcy or proposal. An individual’s required to do counseling sessions with a Trustee and the role of the Trustee is in these sessions, generally is to sit and define historical mistakes and try to help the individual alleviate those – understand credit, understand how to manage credit, look to reestablish themselves.
Then often we help the individual establish some goals and try to help them achieve those financial goals. And, the goal can be anything from making sure that you get a savings account, to maybe going to Walt Disney World in 15 years. A goal can be anything, you can establish what you want. And then the key here is, obviously, is to then structure a budget to get there.
Wayne Kay 11:37
So you finally get that loan. How do you make sure that it kind of stays in good standing with the National Student Loan Center or Canada Revenue Agency? There’s some tips on that.
Mark Marshall 11:49
Yes, what happens is that they’re not going to collect on it while you’re in school. So the key is that you borrow the money, use the money for the intended purpose up until your completion form from school. And the expectation, or hopefully you’re planning some work, is that you update the student loan center, let them know you’re working.
Now, the minute that they’re aware that you’re working and you have some income, they’re going to want to structure some kind of a payment plan. The key is to keep them in the loop about what you’re earning, and provide them with information to substantiate it. You want to make sure that pay stubs are submitted, you want to make sure that tax returns are submitted, because the plan here is to kind of set up a plan or set up a payment that is affordable.
And again, they may lean on you and say, well, here’s the amount you borrowed, and here’s what our payment plan will be. If you can’t meet that payment plan, then you have got to start to ask questions about what programs are available within the student loan system to allow me to levy the payment or apply for interest relief, or to make it something that I can afford to do.
What you want to be aware of is that you just don’t want to go quiet on them, that happens a lot of times with loans or government guaranteed debts. So what happens is, you go quiet, student loans can contact you, there’s no payment arrangement being made. And then what they’re doing is they’re taking that loan and they’re flipping it over to the government, they’re flipping it over to Canada Revenue to collect on now.
Once it’s in the hands of Canada Revenue, they’ve got a little bit more power. They’ve got the ability to garnish, they have the ability to withhold your tax refunds and your GST. And so in my opinion, you want to avoid getting to that point. You want to kind of maintain a good working relationship with National Student Loans and send them the information they want.
And my advice, everything is detailed, everything that you send them. If you respond to one of their requests, make a copy of what you sent them, make a copy of who you spoke to make a copy of the date that it was sent. I hear these horror stories that they’ll say, Well, I sent the information to student loans, and they said they didn’t get it, and I’m tired of it. I’m not sending them any more information. Well, you’re going to have some problems.
And let’s say that you have financial problems in the future and you find yourself in a Bankruptcy or proposal. You can include that debt but there’s nothing stopping a creditor from opposing your discharge or saying, you know what, we don’t want this individual to get discharged from Bankruptcy, we want the student loan to survive.
One of the factors that the court will look at in student loan situations – was the money used for education purposes? Did you finish the education, did you derive some economic benefit from the education? Did you apply for all interest relief programs? And generally, did you act in good faith? Did you communicate? Did you make them aware of your situation because the courts – when they’re reviewing applications under Section 170 decided to include student loans if there’s issues, they will look at those factors. And if you go blank after two years and didn’t bother sending them the information – It may not work for you. So the key here is just to communicate and give them what they want, as frustrating as it might be.
Wayne Kay 15:07
I think that’s the information that every person needs to know if they get a student loan. What you just finished saying is so critical, that there are many different options, programs you can definitely be taking part in, but you have to apply for them. You definitely have to be looking out for yourself.
And just like you and I, I can text you and you didn’t get my text, something happened. So you never know, I send you a couple of essentially five emails, I don’t hear back from you what happened. And it turns out, I had something wrong in it, it doesn’t matter. It doesn’t change what was required from either of us in that interaction. We still have to share that information.
Mark Marshall 15:48
Yes, you want to be able to back yourself up by saying, Look, on this date, I sent this – on this date I sent that and if you’re not willing to cooperate with me, well, then there’s got to be other channels. And again, you want to make sure that you’re documenting what you’re doing just so that you can support your position at any point in time.
Wayne Kay 16:06
Are there some other factors we need to consider before agreeing to obtain this student loan?
Mark Marshall 16:12
I think the biggest factor, and most people don’t do it, and I see people all the time – they run into this situation. They get themselves at a high school, mom and dad or even themselves are saying, you got to do something, you got to go to school, you got to do something.
They find themselves applying or taking a program. Something that they don’t want to do, necessarily, or something that they’re not even necessarily aware of what they’re going to be getting into and what the income would be from it. They’re applying for student loans, and they’re getting student loans.
I’ll see that all the time, where someone will say, look, I was young and stupid. I took out $30,000 in student loans, and I paid my tuition, and I partied for the first year that I was away from home. And now I owe this money. And I’m working a minimum wage job.
I think that any student, or any parent, that’s helping a student, you want to encourage them. Education is key, education is freedom, but to kind of know what you’re getting into, know what you’re going to derive for income, at the end of it. Know that there’s going to be some employment at the end of it.
If you’re taking out a $100,000 student loan to obtain a general arts degree where you’re not necessarily going to find that the income that you need, maybe an arts degree will get you to the next level of education, maybe you then know I’m gonna become a teacher. So that makes sense.
You just have to know your stepping stones, and look at and say, Okay, what’s the cost analysis here of borrowing this money? And yes, it’s going to be free money for now, but am I going to be able to pay this back in the expected timeframe and based on the income that you’re expecting to receive. and I think that sometimes that’s lost.
I think sometimes people are looking to say, Hey, I got to do something here. And you know they’re looking to get into school, they’re not even sure what they want to take. I am a strong proponent of saying, hey, sometimes going out and finding a job after school and getting yourself into the real world – kind of get a feel for what you want to do before you start to spend money on something that you’re not sure that you want to pay for in the future.
Wayne Kay 18:09
And I’ll tell you, as I mentioned, both my kids went through school, and both of them started their first year of school and changed their plan, even though they had a plan for probably three or four years pre going to school. It did change, and most of their friends did too. So I think that’s good advice. It absolutely happens because you don’t know until you actually get there what this whole new world is going to be like.
Mark Marshall 18:32
No, and you get lost in it. I did too. When I went to university in the 90s I did my first year . It was a waste of time and energy, but I had a lot of fun. You hear that from a lot of people, but you pay the price for that fun.
Wayne Kay 18:47
YeS, absolutely. Well, I think this has been very helpful and student loans is something that so many people are getting involved with. So Mark, thank you very much for all this great info.
Mark Marshall 18:58
Thanks for having me.
Wayne Kay 18:59
You got it – Mark Marshall, from AllAn Marshall & Associates. To learn more or to get a free consultation you can go to wecanhelp.ca. And that’s it for today’s Debt Matters podcast.
You can subscribe wherever you get your favorite podcasts from and of course, if you do want some more information, you can always check out debtmatters.ca Thanks very much for listening.
About Mark Marshall
Mark Marshall has been working in the insolvency field for 20 years. He received his Licensed Insolvency Trustee accreditation in 2012 and has also been an active board member with Music NB. He endeavors to give each client he meets advice on all of their available options so they can proceed with the knowledge they need to make an informed decision.