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February 26, 2020 | By: Jean Riddell

Should I Consolidate My Student Loan Debt?

Student Loans

Canada is facing a student loan debt crisis. People all over the country rely on school loans to cover the cost of higher education. The problem is that not all of them are able to pay back that money immediately after graduation. It can take years for a person to pay off their balance — even when they find a high-paying career in a field related to their chief area of study!

Estimates place the total amount of debt students have from school loans at over $28 billion, leaving many graduates desperate for student loan debt help. Many struggling graduates have begun considering private student loan consolidation and other relief options. But, is it a good financial maneuver?

Let’s take a look at the advantages and disadvantages of consolidation (as well as how to consolidate student loan debt) so you can make the choice that’s right for you. Hopefully, this information can help you navigate Canada’s student loan crisis.

Why Does Canada Have a Student Loan Debt Crisis?

So, how did we get here? Well, for years, tuition costs have steadily increased, and many loans had relatively high interest rates. In addition, graduates were entering an unstable job market, where their six-month grace period on school loan repayment did them little good.

Many graduates, unable to secure high-paying jobs, were forced to take unpaid internships or minimum wage employment to survive, making it nearly impossible to pay their monthly minimums. Even for people who do find a “good” job, stagnation in wage growth has made it so that the effective rate of wage growth compared to inflation since 2016 is less than 0.5%.

The Government of Canada has recognized the debt crisis students face — and is taking steps to improve the situation. They have developed numerous tuition-free education programs for low-income families and Ontario recently slashed tuition costs by 10% and will freeze that rate through 2021. While this is all well and good for new students, it is of little comfort to graduates seeking student loan debt help now.

Different Types of Canadian Student Loans

First, it’s important to understand there are three types of student loans in Canada:

  1. Federal loans – fixed or variable rate government loans offered through the Canada Student Loan Program (CSLP).

  2. Provincial loans – specific to each province or territory, with varying interest rates.

  3. Private student loans or lines of credit – these are obtained through banks or other lenders if the federal and provincial loans aren’t enough to cover tuition; these often have higher interest rates.

In some provinces, federal and provincial loans will be consolidated or integrated automatically upon graduation so that you only make one payment that goes toward paying off both loans. In other provinces, however, they are not consolidated – so you must be sure to repay both.

CIBC has a comprehensive list you can check out here to learn which provinces automatically consolidate your federal and provincial loans when you graduate. Private loans, however, will never be automatically consolidated.

How Does Student Loan Consolidation and Refinancing Work?

While the terms are often used interchangeably, student loan refinancing and student loan consolidation are different.

  • Refinancing is paying off one single loan with a new one that has a lower interest rate or better terms.

  • A debt consolidation loan (or, in this case, a student consolidation loan) involves combining (i.e. “consolidating”) multiple debts or loans into one new loan set at a lower interest rate or better terms. For example, if you have a federal loan, a provincial loan, and a private loan, which make up your total school loan debt amount, you may try to find another lender that will combine them all into one new loan set at a lower interest rate. 

Graduates may want to consider either refinancing their school loan or obtaining a student consolidation loan if they have:

  • Made some on-time school loan payments already, showing potential lenders that they’re reliable
  • A good credit score (read more about credit scores here)
  • A stable and well-paying job
  • A cosigner with good credit and/or a good job

In Canada, refinancing or consolidating student debt into a private loan is uncommon (at least, compared to our neighbours to the south who may see offers in the mail to refinance their school loans about twice a week). Doing so could create a loophole in the bankruptcy protection rules that require an individual be out of school for seven years before their school loans can be included in a consumer proposal or bankruptcy proceeding.

The closest most Canadian student borrowers would be able to get to refinancing would be if they remortgaged their home and used the money to pay off their student debt.

Some graduates who are able to secure a student debt consolidation loan may also use it to pay off other unsecured debts, like credit cards or payday loans. However, there are some risks in doing so if they continue to use their credit cards. It’s often extremely difficult (especially for a recent graduate) to keep up with monthly credit card payments and the new loan payments.

Disadvantages of Student Loan Refinancing or Using a Debt Consolidation Loan

While student debt consolidation or refinancing may benefit you if you’re getting a better deal on a loan from a private lender (creating a kind of private student loan), there are disadvantages transferring federal or provincial loans to a private lender:

  1. You will owe a bank, not the government. If you keep the loan with the government, you may be eligible for student loan debt help programs that wouldn't be available to you if you went to a bank or other lender. You can read more about these programs and your eligibility on the Government of Canada website.

  2. You will lose tax deductions. Interest on student loans is tax deductible, offering you annual savings that wouldn't be available with a private student loan from a bank. 

  3. You will likely be charged a higher interest rate. You may like the idea of managing just one monthly payment, but if you have poor (or no) credit history, the bank’s interest rate and fees for student loan consolidation will likely be higher than the interest rate the government is charging you on your debt.

  4. You will pay more interest over time. While student loan consolidation may lower your monthly payments by stretching them out over a longer period of time, that could mean paying more interest over time. Plus, having private student loans hanging over your head for 20 years could potentially hinder your ability to buy a home, get an auto loan, or other financial services.

Consider All Your Student Loan Debt Help Options

Don’t want to consolidate student loan debt with a private bank or just want to investigate some alternative options before going with school loan consolidation? There are a few alternatives to getting a consolidation loan with a private lender, including:

Student Loan Repayment Assistance

Before considering student loan consolidation or refinancing, graduates should investigate other forms of debt help that may be available to them through the government.

For example, if you've maxed out your six-month grace period and simply can't afford to make payments, or if you've begun the repayment process but have fallen behind, you can apply for a Repayment Assistance Plan (RAP). RAPs might be able to reduce your loan payments or halt them entirely depending on your financial situation. You can learn more about RAPs, your eligibility, and how to apply by clicking here

A Debt Consolidation Program

Taking out a loan to pay off another loan isn’t always a strategy for success. Thankfully, there's another option: A Debt Consolidation Program (DCP) with a non-profit credit counselling agency, like Credit Canada. 

A Debt Consolidation Program doesn’t involve taking out a loan. Instead, it's an arrangement where a certified Credit Counsellor will negotiate with your creditors to stop or reduce the interest on your debt. They will also roll all your unsecured debts (i.e., credit card debt, outstanding cell phone bills, payday loans, etc.) into one lower monthly payment. 

But there is a caveat when it comes to student loans—often, the loan must already be in collections for it to be included in a Debt Consolidation Program. Additionally, the Federal portion of your student loans would not pause interest — though any provincial loans may pause interest if added to a DCP.

However, even if your student loan debt cannot be included, your other unsecured debts can, which can make paying back your school loan more manageable. 

Budgeting and Money Management Skills

Maybe instead of consolidating debt, all you need is just some financial coaching. Credit Canada has certified Debt Counsellors who can work with you to help you achieve your financial goals while developing better money management and budgeting skills. 

In addition to student loan debt advice, they can also show you how to make your money work for you through budget planning and expense tracking. In fact, there’s even a free Budget Planner + Expense Tracker tool that you can download now.

How Do I Know if My Student Loan Is in Collections?

If you don't know whether your account has already gone to collections, you can call the following government offices to obtain that information:

  • Provincial Student Loans: Collection Management Unit for the Ministry of Finance, 416-326-0500

  • Federal Student Loans: CRA Collections Service—Canada Student Loan Centre, 1-866-336-7565

Financial Advice for Graduates Is Just a Phone Call Away

If you’re a recent graduate, congratulations on your achievement! And if you’re struggling to pay off your school loan due to other debts, such as credit card debt and outstanding utility bills, we offer student loan debt help.

Even if a Debt Consolidation Program doesn't end up being the right fit for you, we can still offer you free advice, tips, and referrals to help you get your finances back on track. Contact us online today or give us a call at 1.800.267.2272.New Call-to-action


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