How to Get Your Student Loan Tax Credit When You're in Default
You may not hear this from loan centre clerks or your collections agency, but it's a fact. If you're making any kind of payment on a defaulted student loan, you're entitled to a Student Loan Tax Credit.
If your payments are big, that tax credit could save you a few hundred bucks each year!
Now, if the government has started keeping your tax refunds to put toward your student loan debt, you won't get the money in your hand. But you should still apply for it. You deserve it and it will help pay off your debt.
Debt 101 confirmed this with Rob Chambers, then a manager of legislation interpretation with HRSDC, the government department overseeing federal student loans.
And it does make sense because if you're paying money on a student loan, why should it matter who you're paying? Like those who pay their original lenders, you should get an annual statement of the interest you've paid.
Exceptions to the Rule
Canada Revenue Agency (CRA) cautions that there are some cases where defaulted student loans do not qualify for this tax credit.
Usually, these are cases where people 'consolidated' their student loans in with other debt to get a single monthly debt payment or a lower interest rate. Or they refinanced something, perhaps a house, and then rolled their student loans into the deal. These strategies may pay off for some people but they should always keep in mind that when they lump their student loans in with other debt, they loses their eligiblity for student loan repayment aid and this tax credit. For more, see Thinking of Consolidating?
The CRA also won't allow the student loan interest tax credit if you're just paying a
judgment obtained after you failed to pay back your student loan.
If you aren't getting statements
If you don't receive an annual interest statement from your collections agency, contact a supervisor. This will normally be enough.
If that fails, call the organization that contracted your loan to the collections agency. This will depend on the type of loan involved. For example, if you had a risk-shared federal loan with a bank, you'd contact the bank's student loan bureau first and then contact the HRSDC call centre if this fails. See How to Reach the HRSDC Call Centre.
Keep track of everything
If the same collections agency is handling several of your loans, make sure they give you statements for all of them.
Finally, in any year where your loan went from good standing to default - or vice-versa – get statements from both your collections agency and your original lender. This way you can add up the total amount of interest paid.
What if you missed out on earlier years?
You can use some of your old statements, but you may lose on the earliest years. That's because this credit began with the 1998 tax year, but you can only carry it forward 5 years.
So do your math before asking for the statements. For example, if you're getting ready for tax year 2009, there's no point hunting statements earlier than 2005. Not unless you're about to redo your back taxes, that is. In that case, those older statements could be useful.
If you have a low income this year, you might claim the credit that will run out first (2004) and save more recent statements for later. Just remember that 5-year shelf life!