If you are experiencing financial difficulties, a consumer proposal can help you settle credit card debts, personal loans, payday loans, and other debts.

But can a consumer proposal help with government student loan debt? In some cases, yes.

In this guide, you’ll learn how to eliminate student loan debt in a consumer proposal.

Can I include a student loan debt in a consumer proposal?

You can eliminate Canada student loan debt in a consumer proposal if it’s been seven years or more since you attended school as a full-time or part-time student.

Your student debt is treated as a typical unsecured debt, and the student loan debt is discharged upon completion.

If you file a consumer proposal within seven years of completing your studies, you can’t erase your student loan balance. Any amount owing to student loans would still be your responsibility, and interest continues to accrue on the debt.

There is one exception: if the loan provider agrees to your consumer proposal, you can discharge your student loan debt.

The seven-year rule for student loan debt

Under the Bankruptcy and Insolvency Act, there is a seven-year rule for discharging student loan debt in a consumer proposal.

Out of school for seven years or more: you can eliminate student loan debt if your creditors accept a consumer proposal.

Out of school for less than seven years: you cannot eliminate your student loan debt in a consumer proposal.

How do I find my student loan end of study date?

You’ll want to verify your exact end of study date to determine whether you can eliminate your student loan debt in a consumer proposal.

The last day you attended classes is not necessarily the end of study date, so contact the National Student Loan Service Centre (NSLSC) to find out.

A consumer proposal can still help you repay your student loan

Even if you cannot resolve your student loan debt through a consumer proposal, it should be easier to cover these repayments after filing.

All your other unsecured debt payments are consolidated into one affordable monthly payment, freeing up money to make repayments towards your student loan.

Plus, you can stop making student loan payments during your consumer proposal. However, interest will continue to accrue, and you will still owe these payments once you complete your proposal.

Always discuss your options with a Licensed Insolvency Trustee, who can advise on the best way forward.

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Other unsecured debts and private student loans

If you accumulated debts during your student years, such as private student loans, bank loans and credit cards, you can include these in a  consumer proposal, regardless of their age.

Stop creditor garnishments, lawsuits and harassment calls

When you file a consumer proposal, you will benefit from a Stay of Proceedings, preventing creditors from pursuing you during this time.

So if you have debts in collections, all creditor lawsuits, wage garnishments and collection calls for unsecured debts will stop until you complete your proposal.

Eliminate other types of debt in a consumer proposal

A consumer proposal can help with other unsecured debts, such as:

  • Credit card debts
  • Personal loans
  • Payday loans
  • Bank overdrafts
  • Utility bills
  • Unsecured lines of credit
  • Tax debts
  • Unpaid rent
  • Debts owed to friends and family.

Your proposal must list all of your unsecured creditors.

Student loan forgiveness in Canada: the hardship provision

Sometimes, a student loan can be discharged after five years if you are experiencing financial hardship.

When you’ve been out of school for five or more years, you can apply to the court to have the loan discharged early. This process is known as the hardship provision.

The court will not automatically discharge the debt. Instead, it will look at several factors determining whether you acted in good faith to repay the debt before agreeing to discharge the student loan.

Qualifying for early student loan discharge

Some of the questions that may arise when the court reviews your discharge are:

  • How did you use your student loan funds?
  • Did you complete the educational program?
  • Did you take advantage of the federal government’s Repayment Assistance Plan?

If the court is satisfied that you tried to meet your obligations in repaying the loan and see that you have experienced financial difficulties in repaying the student loan, they will discharge you.

You can file a consumer proposal for student loans

A consumer proposal allows you to pay back a portion of your debt, resulting in most unsecured debts being discharged, including student loans over seven years old.

If a student loan under seven years old makes up a portion of your debt, you cannot include it in a consumer proposal, but you can take a student loan payment break while you complete the process.

Even if you cannot include your student debt, you can consolidate your unsecured debts into one affordable monthly amount, which could free up money to pay your student loan.

Talk to a Licensed Insolvency Trustee today to get free advice and determine if a consumer proposal could eliminate your student loan debt.

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