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Student Loans

A student loan can be a ‘good’ debt if it helps you get a degree that will lead to a fruitful career.

How it works

The Government of Quebec supports students by helping them to get a loan from a financial institution for their studies. This loan is interest-free while they are in school, and up to 6 months after they finish their studies. Since the government guarantees the loan, it has a low interest rate after that. For example the annual rate was 4.5% in 2019.

Some students can also get a line of credit. These are not guaranteed by the government. Financial institutions offer student lines of credit to people studying for a high paying career (doctors, dentists, lawyers, engineers, etc.). The line of credit has a relatively low interest rate when they are in school, which is a way that financial institutions try to foster customer loyalty

Possible solutions

Sometimes, life events will prevent you from obtaining your degree or your field of study might not offer the promised job opportunities. Reimbursing your student loan or line of credit can then prove to be very challenging. If you default on your student loan, the government will pay the financial institution back and then it will take measures to recover the debt from you. Such measures can include seizing your tax refunds, tax credits, paychecks and bank accounts.

In certain situations, student loans have a special status in consumer proposals or bankruptcies. In fact, a person who files a consumer proposal or bankruptcy within seven (7) years of terminating their studies will not be able to eliminate their student loan. They will be protected against seizures during the process, but interests will continue to accrue.

However, the law states that a person can apply to the court to release their obligation to repay their student loan if it has been 5 years since the termination of one’s studies. One must show that they acted in good faith and that he/she will not be able pay after filing a consumer proposal or bankruptcy.

A student line of credit does not have the same kind of protection. However, courts will be tougher on someone who has a lot of potential to earn an income after their studies, but chooses not to at least try to pay back their line of credit. In these cases, it is preferable to first try to negotiate a reasonable agreement in good faith before considering bankruptcy.

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