Do You Have a Risk-Shared Loan?

It's easy to find out.

You may not be sure what types of loan you have, especially if you've gone into collections. If so, dig out your old loan consolidation agreements. You'll see a date on the right or near the bottom.

If you have a Canada Student Loan dated between August 1, 1995 and August 1, 2000, it's risk-shared. Provincial student loans between these dates are likely to be risk-shared also, meaning they are held not by government but by the financial institutions that issued them. Examples are Newfoundland, New Brunswick and BC.

Most risk-shared Canada student loans loans were provided by one of three banks as part of a past government agreement: CIBC, Scotiabank or Royal Bank.

If you have a risk-shared loan, you need to be aware of the extra challenges and risks.

Getting help with risk-shared loans

For one thing, you have a different avenue for seeking help than do people with the newer 'direct-lend' loans, which are handled by provincial and national loan service bureaus such as the National Student Loan Service Centre (NSLSC).

Let's consider two scenarios. In the first, you have both types of loans (risk-shared and direct-lend). In the second, you only have risk-shared loans.

If you have both types:

If you're currently in payment on a direct-lend loan, you can get help with that one from the loan service centre involved. You can also get basic aid program information from them that may help you make decisions about your risk-shared loan. But they won't give you actual help with your risk-shared.

Instead, you'll be sent back to the bank or credit union acting as your risk-shared loan lender. That lender is listed on your loan consolidation agreement but you'll know who it is through your past dealings.

It's common for people to pay one student loan off and then the next one, rather than finishing both off at the exact same time. But if you pay off your direct-lend loan before your risk-shared loan, the NSLSC and provincial service centres will stop answering even your most basic questions about aid programs.

Why won't they help you anymore? Because they're not government-run services, which, of course, are supposed to serve all citizens. Student loan service centres are privatized services, which are run by corporations on a contract. And their contract only covers loans issued after August 1, 2000.

If you have only the risk-shared type:

Depending on the service you receive from your bank's call-centre, you may feel like you're out in the cold, cut off from any contact with government services.

However, many people with risk-shared loans in particular have problems getting the information they need, since they are shut out of the provincial and national loan service centres.

With 'risk-shared' loans, your risk is greater

First, let's explain where the name comes from. 'Risk-shared' refers to an arrangement made during this particular loan era. The idea is that the government shares the risk with the financial institutions lending 'government' student loans.

First of all, the government paid the bank or credit union a 'risk premium' of 5% of the value of your initial student loan amount. Also, the government pays these financial institutions all interest charges occurring when you are on interest relief or in school (including a return to school). It also pays for any government deductions you successfully apply for, such as debt reduction.

However, since students had to borrow from the bank during this time period, the bank is still expected to handle your loan service needs during repayment. This include giving you information, sending you loan aid application forms, and sending those applications to government on your behalf.

Banks don't normally send information to risk-shared loan clients on the status of their loan payments. Unlike loan service bureaus for newer student loans, banks don't even let you see your student loan records on-line. Due to this lack of information, some people unintentionally default on their risk-shared loans due to delays, lost application forms and misinformation from bank loan service clerks.

No matter what type of loan you have, risk-shared or not, default cuts off your eligibility to loan aid programs such as interest relief and debt reduction.

But if you get defaulted on a risk-shared loan, the consequences can be greater. As with other loans, you will be pursued for collection and, if you fail to make arrangements with the lender, it will be contracted out to a collection agency. But the bank may also 'call in' any other loans or lines of credit you have with them. A 'call-in' means that they demand immediate payment of those other debts.

For most people, this combination of financial demands would trigger a financial crisis.

With other types of student loans, the lender only pursues you for payment on your student loan. You may run into problems with other debt, due to your defaulted student loan getting listed on your credit report. But you don't face the immediate risk of extra loans being called in by your student loan lender.

So there are two reasons why you face extra risk with risk-shared loans. First, the lack of information from your lender increases your risk of default. Second, the default may trigger 'call-ins' on other loans.

But here's the good news…

You can virtually eliminate the extra risks of risk-shared loans by taking the advice in the following Debt 101 article:

How to Protect Yourself If You Have Risk-Shared Loans