Strategies for Surviving the Burden of Student Loan Debt

In recent years, the issue of student loan debt has escalated into a crisis, affecting almost two million Canadians and posing a barrier to financial stability and economic progress. The COVID-19 pandemic both exacerbated existing financial pressures and prompted temporary relief efforts, but more long-term solutions are needed. Learn more about the student loan debt crisis in Canada and strategies for surviving and potentially alleviating this burden.

The Weight of Debt

The average student loan debt in Canada is about $28,000, posing a significant financial hurdle upon graduation. This average varies greatly depending on the field of study and level of education. Law and medical students shoulder some of the highest average debts of $71,000 and $84,000, respectively.

Canada’s total student loan debt surpasses $23.5 billion, a sum that has steadily increased over the years. As of 2023, about 1.7 million Canadians have student loan debt. Among these borrowers, 59 percent are women, and 45 percent are between the ages of 20 and 24. Students in Ontario carry the brunt of Canada’s student loan debt ($2.3 billion), followed by Alberta ($503.3 million) and British Columbia ($344.2 million).

The average cost of tuition in Canada has been rising disproportionately with inflation for years, so it’s no wonder recent university graduates have more debt than previous generations. Full-time students in undergraduate programs faced an average tuition fee of $6,834 in the 2022-2023 academic year, a 2.6 percent increase from the previous year. Post-graduate programs saw a more modest increase, with average fees rising by 1.7 percent to $7,437. Across Canada, tuition fee increases ranged from 1.1 percent to 7.5 percent. These rising costs contribute to the growing debt burden, particularly in fields with the highest tuition rates, like Executive Master of Business Administration ($53,227) and regular MBA ($30,464).

Paying off the average student loan takes about 10 years, assuming the borrower makes minimum payments and doesn’t take on any additional debt. In Canada, student loans default after three years of non-payment. The default rate for students who started repayment in 2017-2018 was 8 percent. Of these people, graduate students were mostly to default (13 percent).

The Limitations of Short-Term COVID-19 Relief

In response to the financial strain imposed by student debt in Canada, the government introduced several short-term relief measures intended to ease the burden on students and graduates during the COVID-19 pandemic. A graduation cap on money symbolling student loan debt in British Columbia

One significant measure included the temporary suspension of student loan payments. This moratorium provided immediate, though fleeting, relief for borrowers by pausing repayment obligations and interest accrual on federal student loans.

In addition, the government increased the grant for full-time students to $6,000 and for part-time students to $3,600. This amount has decreased for the 2023-2024 school year. Full-time students can now receive up to $4,200 per year, and part-time students can receive up to $2,520.

Students with dependants were also awarded larger grants during the pandemic. Those have since decreased, but full-time students with dependants under certain income thresholds can still receive up to $280 per month while in school through the end of the 2023-2024 school year, or up to $2,240 per year for each dependant. Part-time students with dependents may be eligible for up to $2,688 per year, based on the assessed need. Students with disabilities may qualify for $2,800 per year of their studies.

Despite these interventions, the limitations of such short-term measures are clear. They provide temporary respite but do not address the principal amounts of the loans themselves. This reality stresses the need for more comprehensive and long-term solutions to Canada’s student debt crisis.

Student Loan Debt Solutions

University graduates facing a high student debt burden have several strategies and relief options to consider:

Loan management education: Far too many students take on loans without knowing what they’re signing up for. Explore the specifics of various student loan options, including the interest rate, repayment term, and the potential benefits or drawbacks of consolidation or refinancing. Educating yourself is the key to making informed decisions.
Financial literacy and budgeting: Financial literacy skills, including effective budgeting, are crucial for paying off student loans effectively. Learn to prioritize expenditures, with a focus on repaying loans to reduce interest costs and lower your overall debt load.
Repayment assistance programs: Canada offers several government programs designed to aid in loan repayment. These programs help by adjusting your monthly payments based on your income or provide temporary relief during periods of financial hardship, making it easier to manage your obligations without falling behind on your loans.
Debt forgiveness for specific professions: Programs are available for family doctors, residents in family medicine, nurse practitioners, and nurses working in under-served communities that may forgive a portion of your loans. However, this only applies to Canada Student Loans. It can’t be applied to the provincial or territorial portion of a student loan or to loans that have been converted to a line of credit, private loan, or Ontario Medical Resident Loan.
Consumer proposals: Filing a consumer proposal through a licensed insolvency trustee consolidates your debts into a single, manageable settlement. This process halts interest accumulation and protects you from debt collection actions.
Student loan consolidation: Consolidating your government-guaranteed student loans with a bank or other lender can offer more favourable interest rates and the potential to improve your credit rating. However, this option might affect your eligibility for certain government relief programs, so it’s important to consider all factors.
Personal bankruptcy: Although seen as a last resort, bankruptcy can eliminate student loan debt under certain circumstances, including being out of school for more than seven years. While it offers a fresh financial start, it also imposes restrictions on accessing future funding for a few years, highlighting the importance of considering all your other options first.
Professional advice: Before going any of the routes outlined above, consult a financial advisor or student loan specialist for advice tailored to your financial situation. A professional can offer insights on the benefits and potential drawbacks of consolidating or restructuring your debt, helping you make a wise decision based on your financial goals.

Looking Toward Long-Term Solutions

With temporary COVID-19 relief measures now expired, many have called for a reevaluation of how higher education is funded in Canada. Proposals for more sustainable solutions that could alleviate student debt going forward include:

Emphasis on financial literacy: Enhancing financial literacy education from an early age could make a big difference. Advocates for change have suggested incorporating financial management skills into the Canadian education system, allowing students to learn about budgeting, savings, and the implications of debt before entering college. Such programs could inform students about their educational financing options, including the types of loans they might consider and how to prioritize repayment after graduation.
Tuition regulation: Asking provincial governments to regulate and cap tuition fee increases is another essential strategy. This could involve setting maximum allowable percentage increases or linking tuition fee adjustments to inflation or other economic indicators. By controlling the cost of tuition, the government could make higher education more affordable and predictable for future students and their families.
Expanded grant programs: An increased availability of non-repayable grants for students, especially those from low-income backgrounds, could reduce the need for borrowing. This approach directly targets the lack of affordable higher education, making it more accessible while decreasing the future debt burden on students.
Sliding repayment scale: Advocates argue that student loan repayment plans should be based on the borrower’s income for a more manageable and fair approach. There should also be provisions for payment pauses or reductions during times of financial hardship. Such a system would help prevent graduates from becoming overwhelmed by payments during the early, often lower-paying stages of their careers.
Expanded forgiveness programs: Some loan forgiveness programs exist, but they should include more professions like healthcare, education, and public service, which may not offer high salaries but serve the public interest. This would help alleviate individual debt burdens and incentivize graduates to pursue careers in under-served areas.

Find Relief from Student Loan Debt

Whether or not the government enacts changes to combat the student loan crisis, you still have debt to contend with today. That’s where solutions from J. Bottom & Associates Ltd. prove useful. We offer student loan debt help for university graduates through student loan consolidation, consumer proposals, and personal bankruptcy. Drawing on over 55 years of cumulative experience as a licensed insolvency trustee, we can help you choose the option best suited to your vocational and financial situation.

For help achieving financial freedom from student loans, please contact us today. We provide complimentary and confidential financial assessments at our offices in New Westminster, North Vancouver, and Port Coquitlam, BC.