When You Can't Get Interest Relief
In many provinces, Interest Relief (IR) is the best-known loan repayment aid program. The government pays the interest on your provincial student loan when your income drops too low to make your full monthly payments. Under Interest Relief, your monthly payment is either reduced or postponed for 6-month periods.
Interest Relief used to be available for federal student loans, but was cancelled along with Debt Reduction, to be replaced by the Repayment Assistance Plan (RAP).
But when it comes to your provincial loans, what if you've used up your maximum available Interest Relief – or if you don't qualify in the first place?
If your income is below your needs and your student loans are in good standing, you may be able to able later on for a debt reduction or loan remission program.
However, IR typically runs out at least six months before you can qualify for this kind of assistance. In this case, you need to find other ways to hang on long enough to get that help.
If you wouldn't qualify for that kind of debt assistance, you still may need to take occasional breaks when dealing with other financial challenges.
Either way, one or more of these options could get you through…
Revision of Terms
Ask your student loan centre to set up a "Revision of Terms." This extends the payment time of your loan. Normally the extension is to a maximum 14.5 years, instead of the standard 9.5 years.
What effect will the change make? Well, it should bring your monthly payment down by 25 to 35%. You might wonder why a 50% extension of payments wouldn't bring the cost down lower. The answer is that extended payments cost you more in interest charges.
Governments and banks act as if "Revision of Terms is a gift to you, offered from the goodness of their hearts. Do what you can to avoid paying out your loans over these extended periods. But if ‘ROT' is what you need to hold things together or buy yourself some time, then go for it. You can catch up, with extra payments later.
Interest-only Payments (aka 'Principal Deferral')
As the name implies, you ask for permission to cover only the interest payments on your loans. You are deferring (putting off) payment on the actual amount you own (your loan principal).
If you haven't made much headway on your loans, the amount you pay on interest may be so high that your payment drops in half. In that case, you'd get a deeper cut than you'd get from Revision of Terms. But on the other hand, you're not reducing your debt at all.
Not every lender will agree to this, but ask if you need it. Normally, these interest-only payments are arranged for a 6-month period. You may be restricted to getting only one such period in the lifetime of your loan. But some provinces now allow one per year (that is 6 months per year). At writing, BC is an example. Canada's student loan policies are constantly changing, so check out the latest rules in your province.
What good is this option? Well, since you'll be covering your interest costs, your debt won't grow the way it does during the ‘grace period' after school. But your debt won't shrink, either. You'll be spending money just keep your loan in good standing. While that may feel frustrating, it could be worth a lot to you.
Tara couldn't make her regular payments anymore but she was near the date when she could finally apply for the Debt Reduction program in her province. (Sometimes this is called 'Loan Remission'). Interest-only payments made sense for Tara because they kept her loan in good standing long enough to apply for help – which she did get.
As with Revision of Terms (ROT), interest-only payments really just buy you time. Catch up later by making extra payments to cut the actual amount you owe (your loan principal).
The One-Month Suspension
We came across this never-advertised option in a case that involved a risk-shared student loan held by RBC bank. If you're in a financial emergency, seek this out regardless of your type of loan. If you land this one, you get to skip a payment.
Nathan was told by student loan centre staff that he could never suspend (skip) a payment, no matter what. Car crash, half-dead – no matter what happened, they said they'd never cut borrowers a break. Nathan believed them. But when we checked with management at his student loan centre, we learned that in fact, he could apply to skip a payment for one month.
This one-month break, we were told, is allowed only once per year. It's an emergency option to help people deal with an unexpected crisis, such as a job loss or that stay in the hospital.
If you are in a crisis, ask for this option, even if you don't have a risk-shared loan. It may not be allowed in your province or for your loan type, but it's worth asking. If you're told it's not available - as Nathan was wrongly told - talk to the supervisor. If that fails (and you really need this break) take it to the HRSDC Call Centre (see Learn More below). And if you also would need more than a month of payment suspension, talk to them about that too.
Of course, there's a catch to this one-month suspension. (There's always a catch when you cut down on payments.)
Next month, when you may your regular payment, not much of it will go toward your principal (what you owe). That's because you have to first pay the interest they couldn't collect last month when you skipped. So they'll collect interest for the skipped month on top of interest for the current month. Only a small amount will be left to apply to your debt.
But the month after that, everything goes back to normal, with the regular amount now helping to pay off your principal. And if this one-month payment suspension saves you from financial crisis, it'll make good sense.