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Ontario|Debt and BankruptcyCredit Issues 255 Student Loan Repayment In Ontario, the Ontario Ministry of Training, Colleges and Universities administers the provincial and federal governments' student loan programs through the Ontario Student Assistance Program, called OSAP for short.
The distinctive feature of a student loan such as OSAP is that the federal and provincial governments pay the interest on the loan from the time that the student borrows the money until the student graduates or ceases to be enrolled at school full-time. That means that interest on the loan does not accrue for the student while attending school. Although some Canadian banks and other financial institutions administer their own student loan programs, unlike with OSAP, students usually have to pay the interest on bank administered loans while attending school. It is important to note, however, that even under OSAP a student is borrowing money from a bank and not from the government.
Generally, eligibility for OSAP requires a student to be a Canadian citizen or permanent resident, a resident of Ontario and enrolled in an approved post-secondary program. OSAP provides a list of approved programs and schools as well as guidelines for how a student's financial need is assessed. New applicants for OSAP will undergo a credit check by the ministry. The ministry's position is that applicants are ineligible for OSAP if they have been in arrears for 90 days or more on three or more personal loans in the past three years with a combined value of $1,000 or more. A student whose application is denied should contact his or her school's financial aid office for information about appealing the rejection.
- Repaying a student loan
A student must begin to repay the OSAP loan on the first day of the seventh month following graduation or upon the completion of full-time enrollment as a post-secondary student. During these six months, the student must visit the bank which issued the loan. The bank will determine the amount outstanding and interest rate for the student loans, and establish a repayment schedule which can last for up to nine and a half years. Note that interest on the OSAP loan will accrue during the six months following graduation.
The Ontario and federal governments offer interest relief programs for borrowers who can demonstrate financial need, which is usually as a result of low income following graduation. While such relief programs may temporarily cover the interest of a student loan, borrowers are expected to continue to make payments towards the principal of the loan. The bank which issued the loan and the school's financial aid office will have information on interest relief programs.
- Default
If a borrower fails to make any payments for 90 days after the OSAP repayment schedule begins then the loan may be deemed inactive by the bank which issued it. The bank may then seek payment of the loan from the Ontario government. An OSAP loan is considered to be in default when the Ontario government has paid the bank's claim for an inactive loan.
If a borrower becomes in default for an OSAP loan then there are significant penalties which will affect his or her ability to borrow money in the future. The ministry turns over responsibility for recovery of a defaulted OSAP loan to private collection agencies. Furthermore, the ministry will report the default to a credit bureau and place the person's name on the Ontario Restricted List until the default is cleared. The Ontario Restricted List is compiled by the Ontario government. Reasons for being put on the list include default of a student loan, failure to repay an overpayment of a loan or bursary, breaching OSAP's application conditions or filing for bankruptcy. People on the list are not eligible for future financial assistance from the government.
Finally, the governments of Ontario and Canada can withhold a defaulted borrower's income tax refund and apply the proceeds towards a student loan debt. A school's financial aid office will have information on the process for addressing and clearing a default of an OSAP loan.
- Bankruptcy and student loans
Courts generally give special consideration towards a debt incurred by a government student loan. The principle behind this consideration is that the failure of a borrower to repay a student loan endangers the program for other needy students. Consequently, borrowers should be aware that it is difficult to discharge a student loan by filing for bankruptcy.
Under recent amendments to Canada's Bankruptcy and Insolvency Act, the debt incurred by a government student loan will no longer be released by an order of discharge if such an order occurs either before or within ten years after the date upon which the bankrupt borrower ceased to be a full-time or part-time student. For bankruptcies filed before this amendment came into force in 1999, the period is two years. Only after this two or ten year period may a court, upon application, release the student loan debt. In order for such an application to be successful, the bankrupt borrower must demonstrate that he or she: (i) acted in good faith with respect to the student loan debt; and (ii) has and will continue to experience financial difficulties to an extent that he or she will be unable to pay liabilities under the student loan.
Comprehensive information about OSAP can be found on the government's website at osap.gov.on.ca. For legal assistance, contact a lawyer.
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