Get Out of Debt. Call Us at: 1 (800) 267-2272

Get A Free Debt Review
  • Call Us at: 1 (800) 267-2272
  • Get A Free Debt Review
  • Can Debt Consolidation Help Canada's Student Loan Crisis?

    by:
    Josie D'Addario

    If you have student loan debt you might be considering debt consolidation to help pay it off. But before making the jump, it's important to know what you're getting yourself into and if it can help. You've made a big investment, and pursuing higher education not only benefits you the learner, but also the country as a whole. University and college graduates generally contribute more in taxes, rely less on government programs, are more likely to be employed and volunteer within the community, and are less likely to be imprisoned. And what do they get in return for these contributions to society? A boatload of debt.

    Student Loan Debt by the Numbers

    Current estimates place the total amount of Canadian student loan debt at a staggering $22 billion. And tuition isn't getting any cheaper. Recent reports reveal that tuition fees increased by 3% for undergraduate programs in the 2017-18 academic year, putting the annual average tuition for Canadian universities at about $6,500. And other programs have much higher annual costs, such as dentistry at about $22,300, law at around $13,600 and engineering at about $8,000. What really hurts graduates is the interest. Despite a payment and interest-free six-month period following graduation, interest builds and continues to build once payments start. Graduates can choose a fixed interest rate (where the rate doesn’t change for the duration of the loan) or a variable “floating” interest rate where the rate fluctuates.

    What is the Government Doing About the Student Loan Debt Crisis?

    Governments in Canada understand there is a problem and are taking steps to improve the situation. In 2017, the government of Ontario created the Ontario Student Assistance Program, offering tuition-free education for 210,000 students. New Brunswick followed suit, offering a similar incentive for low-income families. The government of British Columbia began an initiative to make tuition free for former youth in care. While these efforts are moving things in the right direction for those starting their post-secondary educationrecent graduates who remain saddled with crippling debt are left to manage on their own.

    Why is Student Loan Debt Such a Problem?

    Aside from increasing tuition costs and the high levels of interest at play, today’s graduates are entering an unstable job market. They’re not coming out of school and getting a job that provides a reasonable amount of money that would allow them to repay their debt. Many are having to take unpaid internships, temporary work, or minimum wage employment. (Yup, that barista at Starbucks who brewed your coffee this morning or that Uber driver who got you to work probably has a degree.) This makes it difficult or downright impossible to make student loan payments.

    What Students Are Saying

    According to Global News Canada, over 75% of Canadian graduates under 40 have some regrets about the money they spent while in school.

    • 30% would have lived by a more frugal budget
    • 28% would have worked more during school
    • 25% would have avoided racking up other debts, such as credit cards and car loans

    While this is some very good food for thought for those entering or still attending college or university, for many graduates it’s already too late. As they say, 'what’s done is done.' So how can a graduate undo what has already been done? A debt consolidation program may provide the answer.

    Is Debt Consolidation an Option for Paying Off Student Loan Debt?

    Debt consolidation is the process of combining two or more debts into one payment. If you have multiple debts in addition to your student loan debt, debt consolidation might be an option that can save you money. It can also help make managing your other debt much easier if all you have to worry about it just one payment. When it comes to debt consolidation, you have two options: Getting a debt consolidation loan or signing onto a Debt Consolidation Program. Both are very different, but both require you to have other debt in addition to your student loan.

    Using a Debt Consolidation Loan To Pay Off Your Student Loan Debt

    A debt consolidation loan is usually obtained through a first-tier lender, like a bank or credit union. You need to have a good credit rating in order to obtain a debt consolidation loan. If you can get one, you use it to pay off all of your unsecured debt, which includes things like credit cards, payday loans, and outstanding utility bills. Once you've paid off all of your debt using the debt consolidation loan, you pay back the loan by making one single monthly payment set at a single interest rate. 

    After you have paid off your credit cards using the debt consolidation loan, you will continue to have access to them but now with zero balances. Many people might think that having access to their credit cards is great but it can actually make your financial situation much worse. If you use your credit cards, you will continue to accumulate debt. But now you have that big debt consolidation loan to pay back on top of your monthly credit card payments, which can be extremely difficult.

    You should also know that it is really up to the lender and creditor whether or not a debt consolidation loan can be used to pay off your student loan debt. But sometimes just being able to address your other unsecured debt can significantly help make managing your student loan debt a lot easier. 

    Can a Debt Consolidation Program Help Me With My Student Loan Debt?

    A Debt Consolidation Program doesn’t involve taking out a loan. Instead, but it's an arrangement where a certified Credit Counsellor will negotiate with your creditors to either stop or reduce the interest on your unsecured debt, which includes credit cards, payday loans, outstanding utility bills, etc. Because student loan debt is considered unsecured debt, there's a chance it can be rolled into the Debt Consolidation Program. But this is usually only the case if the student loan is already in collections. Again, it's a case-by-case basis. 

    If you decide that a Debt Consolidation Program is your best option, your Credit Counsellor will propose a new repayment schedule that works within your budget. This will let you see how you can realistically pay off your debt over time. Your Credit Counsellor will also negotiate with your creditors to stop collection calls and stop or reduce the interest on your debt. Once you're 100% debt-free, they can teach you how you can rebuild your credit. They will also provide money management and budgeting tools to help ensure you never find yourself in debt trouble again.

    Get help managing your student debt 

    If you’re a recent graduate, congratulations on your achievement! If you find that you’re struggling to pay off your student loan due to other debts, such as credit cards and cellphone bills, we may be able to help. Even if a Debt Consolidation Program doesn't end up being the right fit for you, we can still offer free advice, tips and referrals for getting your finances on track. Contact us online today or give us a call at 1-800-267-2272.

    Our Certified Credit Counsellors Offer Free, Non-Judgmental and Confidential Advice

    Topics: Student Loans

    Print This Article

    Leave a Comment