Getting help: The basic student loan repayment aid programs….
Q. What is interest relief?
A. After you finish school, interest relief lets you keep in good standing with your government student loan when you're temporarily unable to make payments on your loans. This may happen because of unemployment or a low income while you're starting your career.
Interest relief is still offered by many provinces, but no longer by the federal government. More students use interest relief than any other program except revision of terms.
Some people are eligible but they don't apply for it. Don't be one of them. If you find extra money while you're on it, use that to directly cut your debt.
Q. Does interest relief shrink your debt at all?
A. No. Basically, the government pays your loan interest for the month. The principal amount of your debt (what you borrowed) stays the same. You're just being allowed to postpone or reduce your regular payments, without having extra interest costs piling up.
While interest relief won't cut your debt, it keeps your debt from growing. It also keeps low-income people from defaulting on their student loan if they qualify – until they use up the maximum months they're allowed.
Q. How much interest relief can you get?
A. If you qualify, you get interest relief (IR) for six-month periods. You can renew this up to a maximum of 30 months and, in some cases, a further 24 months (called extended interest relief). Check with your provincial student loan lender for the latest standards there.
Requirements for interest relief include: eligible income level, loan in good standing and Canadian residency.
Q. What is debt reduction?
A. Debt reduction (sometimes called loan remission or loan forgiveness) is offered by some provincial governments to help students actually cut the amount of their debt. It is no longer offered by the federal government.
Here's what happens: a certain amount is 'forgiven' from the 'principal' part of your debt (the 'principal' is what you actually borrowed). This reduction lets you pay off their student loans more quickly. Of course, it also saves you money.
Debt reduction is usually only available to people with long-term financial difficulties, including those with severe permanent disabilities.
Exceptions are where the provincial government offers tax breaks for income-earning grads - or a loan reduction to certain occupational groups, such as health workers who agree to work in remote regions.
Q. What is a repayment assistance plan (RAP)?
A. RAP is a more complex 15-year aid system blending elements of interest relief and debt reduction. The timeframe will only be 10 years for those judged to have permanent disabilities.
On August 1, 2009, RAP replaced the former interest relief and debt reduction programs used by Canada Student Loans. Over time, more provinces are expected to shift over to RAP, in place or interest relief and/or loan forgiveness (debt reduction).
Like the other loan repayment aid programs, RAP is open to lower-income people with loans in good standing. A form of interest relief will go to those who qualify during the first 5 years, and since that won't reduce the debt, during the next 10 years, the government will allow a greater share of your monthly payments to go to the principal.
Students are now being told that if they have any debt remaining after 15 years of payments, that remaining debt will be forgiven. Most students will not want to (or need to) live in extreme poverty for 15 years, however. In other words, most of those who are accepted into RAP will pay at least some of their loan.
Q. What is a permanent disability benefit?
A. This program, sometimes called the PDP, is a government student loan forgiveness program for people who are experiencing long-term financial hardship due to a severe permanent disability. It's offered by the federal and some provincial governments.
In Canada, the federal PDP program was folded into the RAP program in 2009. Under this system, 5 years is removed from RAP, so there is a 10-year timeframe for those judged to have permanent disabilities. This is called RAP for Borrowers with a Permanent Disability (RAP-PD).
Q. I haven't even heard of the PDP or RAP-PD. Do many people get it?
A. No. Criteria is very strict for the federal program in particular. Relatively few people qualify, including people receiving disability benefits from the provincial or federal government. Programs generally require applicants to have a severe and permanent physical or mental impairment that will restrict their ability to perform the daily activities required for study or work.
According to one federal Access to Information request, only about 40% of applicants are accepted.
However, some people succeed after making repeated applications.
Q. What is revision of terms?
A. For most people, revision of terms just means extending their repayment. To do this, you ask your lender to stretch out the repayment time to the maximum allowed for student loans.
There's no cost to the lender, whether this is government or a bank. In fact, the government or bank will benefit if you "revise your term" because they get to collect more interest charges from you. Maybe that is why they promote it so much!
Since it benefits, rather than costs, the government, anyone can get "revision of terms". There's no need to fill out application forms. Just call up your lender's call-centre and ask for the new terms.
Just make sure they're sent in writing. You don't want to make the wrong payment amounts.
Q. How long do you pay with revision of terms?
A. The standard student loan repayment term is 10 years, which becomes 9.5 years once you subtract the 6-month 'grace period' following school.
Most people use revision of terms to extend their payment term by 50 percent. With this option, you're expected to pay for 15 years (14.5 years after the grace period is subtracted). This totals 174 months. (An exception is made with part-time student loans. Their maximum term is 114 months.)
You can also revise your terms to pay faster, with larger monthly payments.
Q. What are the pros and cons of revision of terms?
A. The advantage of extending your repayment term is that you can reduce your monthly payment amount. If your income is low, this reduction may keep you out of default when you've run out of interest relief and it's too early to apply for debt reduction. (By its time limitations, interest relief does run out before anyone is eligible for debt reduction.)
The disadvantage of revising your terms to extended payment is that it will cost you more to repay your debt. This is because you'll have to pay interest costs over this longer time period. Also, the monthly payment is not cut very much – only by about 25 percent. However, if this will be your only way to stay out of default, extending your payment term makes sense.
Q. Could I revise my terms to pay faster so I save on interest costs?
A. Yes, you could ask your lender to revise your terms to larger monthly payments so you can pay more quickly, in order to cut interest rates.
However, this commitment might cause problems for you later. It is safer to accept the standard terms and just pay extra amounts whenever you can. This could achieve similar savings without putting you under so much pressure.
Q. Where can I find out more details on aid programs, including ones you didn't include here?
A. For more details on specific student loan aid programs, do a 'search' on our site for the specific program, sich as RAP. Or see these other sections in Debt 101: the Research Library and the articles in Financial Aid: Student Loan Advice.
