RAP 101: First Details on the federal Repayment Assistance Plan

Three Things First

 
 
What does RAP do, besides rhyme?
 
RAP helps eligible people manage the repayment of their Canada Student Loans by allowing them more affordable monthly payments.
 
 
What happened to the other aid programs? Interest Relief? Debt Reduction? 
 
When RAP began on August 1, 2009, the federal government folded elements of the Interest Relief and Debt Reduction in Repayment programs into RAP. The government closed both those earlier programs on July 31, 2009. 
 
 
How does RAP work?
 
If you are accepted into the RAP program, your monthly student loan payment will be based on your income for up to 15 years.
 
In theory, if your student loan debt is not paid by the end of 15 years in the RAP program, the government will pay off what remains.
 
Yes, everyone with loans seems to like that part. But remember that you would need to be poor for 15 years to have been on RAP this long!
 
The government is banking on the likelihood that you will finally get a decent job before the 15 years is up. In that case, you'll pay off your student loan with normal payments, since you will then be ineligible for any RAP. However, the program can be seen as a kind of insurance should you have a 15-year run of bad financial luck.
 
The federal government's CanLearn website gives basic information describing this program. Note: We find CanLearn pages often go down, so if this happens when you click a link here, just google RAP and CanLearn and hope they're back online again!
 
Their page, when it's working, is well-written. So you might as well see it directly, including this backup page with sample scenarios.
 
CanLearn stresses three points about RAP:
 

  • An affordable payment is calculated on the basis of a borrower’s family income and family size.
  • The maximum affordable payment will not exceed 20 percent of a borrower’s income.
  • You are eligible for the new Repayment Assistance Plan if your 'affordable payment' is less than your required payment.

 
CanLearn is giving more detail on RAP than it has on past programs. It's good to see that. But RAP is still not as easy or inclusive as it sounds on government websites.
 
On the bright side...  RAP may be a welcome break for some low-income people burdened by big Canada Student Loans. RAP may also ease the fears of students who worry that they'll never earn enough to pay their humungous education debts. Fifteen years is a long time, but at least it is has an end-date.
 
Still, to see the whole picture, you need details.
 
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                                            RAP 101: Details for Beginners
 
 

Q. So With RAP, I Only Have to Pay 20% of My Income On Student Loans?
 
A. Maybe, Maybe Not.
 

The maximum affordable payment is 20 percent. Maximum, note. Yes, this means you might not need to pay that much! In fact (under the current income chart) when your income falls below $20,000, you won't need to pay at all.
 
But remember that this maximum 20-percent does not apply to private student loans , which many students now use to 'top up' their government loans. So you could still be paying more than the 20-percent "maximum" when you add up all your other student loan payments.
 
Also, that maximum 20-percent is based on your income before your taxes and expenses. In other words, it's based on your "gross" income, not your net income. And 'income' will include things you might not think of, such as money you got from cashing in your RRSP savings.
 
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Q. So There's Less Paperwork With RAP? This is Going to Be Simpler Now?
 
A. Maybe, Maybe Not.
 

RAP seems to mean less paperwork, but in fact could lead to more. That's because you'll be applying for Interest Relief or Debt Reduction (if it's available) for some provincial student loans, at the same time as applying for RAP on your federal student loan. Some - but not all - provinces are doing this using the same RAP application form, but even with this, the programs are different and that gets confusing for people.
 
As always, Canadian student loans are badly complicated by our split between federal and provincial student loan systems.
 
Some positive-thinking people at Canada Student Loans hope that one day, all provinces will integrate their loans and sign onto RAP and make life simpler. But would that really be the Canadian Way?
 
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Q. I've Been Paying Student loans for Years? Can I Get into RAP, Or Is It Just For Future Grads?
 
A. Maybe, Maybe Not.
 

Okay, it's not just for future grads. If you're already in payment on your Canada Student Loans, this new program could help you. And here's another clear answer: your Canada Student Loans can be included into RAP regardless of their age.
 
So if you have older loans - guaranteed, risk-shared, direct-lend - that's okay. If you're dealing with older loans through a bank or HRSDC instead of the National Student Loans Service Centre - no, that shouldn't keep you out of RAP.
 
However, as with the now-cancelled Debt Reduction and Interest Relief programs, Canada Student Loans won't accept defaulted student loans into the new RAP program. And there is apparently no plan to change this.
 
This is a critical point, since many people with outstanding older loans have low incomes, and at some point, they have defaulted.
 
This fall, Debt 101 will discuss procedures for getting back into good standing with Canada Student Loans. This 'loan rehabilitation' would allow people with past defaults to become eligble for the RAP program. 
 
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Q. With all this "Maybe, Maybe Not," is RAP Really Better Than the Old System?
 
A. Probably, but Maybe Not.
 
 
While RAP will probably help a larger number of people than Interest Relief and Debt Reduction in Repayment, it will take longer to get noticeable debt reduction with RAP. That's why Debt 101 ran a 'countdown' campaign to remind eligible people to apply for federal Debt Reduction in Repayment by July 31, 2009.
 
Remember also, that programs can change. You may start RAP assuming that your debt will end in 15 years, but what is to prevent another government - or changing times - from stretching out that deadline? Or what guarantee do you have other terms won't change before you get to the 'carrot' of that promised debt reduction?
 

 

 

Learn More

 
More about how RAP works: RAP 201.
   
See the new RAP Application Form.