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Can Debt Consolidation Help Canada's Student Loan Crisis?

by:
Josie D'Addario

Pursuing higher education not only benefits the learner, but Canada 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 less likely to be imprisoned. What do they get 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 is not 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, with significantly higher average annual costs for some programs, such as dentistry (about $22,300), law ($13,600) and engineering ($8,000). What really hurts graduates is interest. Despite a payment-free six month period following graduation, interest builds and continues to build once payments begin. 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.

  • The fixed interest rate is prime + 5%
  • The floating interest rate is prime + 2.5%

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. Last year, 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. Recently, the government of British Columbia began an initiative to make tuition free for former youth in care. Despite these efforts, which are moving things in the right direction for those entering college, there is no benefit to recent graduates who remain saddled with crippling debt.

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 into a position providing 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 that brewed your coffee this morning or that Uber driver that got you to work likely has a college 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, 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 Student Loan Debt?

Debt consolidation is the process of combining two or more debts into one payment. If you have multiple debts on top of your student loan debt, consolidation might be an option that can save you money and make managing your other debt much easier.

A debt consolidation loan involves taking out a loan to pay off all of your debts, usually through a bank, credit union or finance company. However, to obtain a debt consolidation loan your credit rating and credit score must be in good standing. (Unfortunately, this is often not the case for many recent graduates.) You'll also continue to have access to your credit cards, which can make the situation worse because you continue to accumulate debt while still having to pay back this new (huge) loan. 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. 

A Debt Consolidation Program doesn’t involve taking out a loan, but rather is an arrangement with a non-profit credit counselling agency where a certified credit counsellor will negotiate with your creditors to either stop or reduce the interest on your debt. Because student loan debt is considered unsecured debt, there is a chance that it can be rolled into the consolidation program along with credit cards, car loans, and more, 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 through a non-profit credit counselling agency is your best option, your counsellor will propose a new repayment schedule that works with your budget, so you can realistically pay off your debt over time. They will also negotiate with your creditors to stop collection calls, stop or reduce the interest on your debt, and once you're 100% debt-free they will give you everything you need to know to rebuild your credit the right way, including money management and budgeting tools to help ensure you never find yourself in debt trouble again.

Hats Off to Graduates

If you’re a recent graduate, congratulations on your achievement! But if you’re struggling to pay off your student loan due to other debt,s such as credit cards and car loans, 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.

Topics: Student Loans

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