Does Student Loan Consolidation Work in Canada?

Can you include student loans in debt consolidation?

Thanks for your question, Sam. Worrying about student debt is completely normal. Below I’ll explain how student loans work in Canada, practical ways to limit how much you need to borrow while studying, and the options available if you have trouble repaying your loan after graduation.

How much does post-secondary education cost in Canada?

Post-secondary education is often a key step toward a chosen career, but the cost can be a significant hurdle. Tuition and overall expenses vary depending on many factors, including:

• which institution you attend;
• whether you’re in an undergraduate or graduate program;
• on-campus versus off-campus living arrangements;
• eligibility for grants, scholarships or bursaries;
• whether you are studying in your home province;
• your chosen field of study;
• and living costs such as food, housing and transportation.

Recent federal data places average undergraduate tuition for Canadian students around $6,800 per year, and about $7,400 for graduate programs. These averages don’t include program length, textbooks, supplies or living expenses, and costs can be substantially higher depending on your field.

How student loans work in Canada

There are three main sources of student financing in Canada:

1. Federal loans: These are provided through the Canada Student Loan Program and can be fixed- or variable-rate. The federal government also offers non-repayable grants to students who demonstrate financial need — money you don’t have to pay back.
2. Provincial and territorial loans: Each province and territory runs its own student aid program with distinct eligibility rules, loan amounts and repayment terms. Many students combine federal and provincial assistance.
3. Private loans or lines of credit: If government loans don’t cover all costs, private lenders offer student lines of credit and loans. These usually carry higher interest rates and different terms, so review the details carefully before borrowing.

Recent changes to student loans

There have been noteworthy updates to federal student aid. As of April 2023, the federal government removed interest on new and existing Canada Student Loans going forward (interest accrued before April 2023 still needs to be paid). Interest may still apply to some provincial or territorial loans. The government also increased certain forgivable loan amounts for medical professionals working in rural areas, boosted maximum grant amounts, and raised the weekly loan amount students can receive for study periods.

Is student debt “bad debt”?

Student debt is not inherently “bad.” Borrowing to finance an education can be an investment in your future, improving your earning potential and career prospects. The key is to borrow only what you need and manage that debt responsibly. Where possible, minimize borrowing by applying for scholarships and bursaries, choosing paid internships when they’re available, and working part-time during studies or full-time in summer months to reduce the amount you must borrow.

How to keep costs down while in school

Smart planning can significantly lower the debt you leave school with. Consider these practical steps:

1. Create a realistic budget. Track your income and liquid assets, then allocate funds for fixed and discretionary expenses. If your spending exceeds income, cut non-essential costs such as multiple streaming services or a costly gym membership — many campuses offer reduced or free access.
2. Choose an affordable living arrangement. Living at home and commuting can be far cheaper than residence. Shared off-campus housing is another way to save on rent and living costs.
3. Balance tuition cost with employability. Consider fields of study that offer strong job prospects relative to tuition cost. Research career outlooks, wages and required skills so you can make an informed decision that aligns with your interests and financial goals.

What to do if you can’t repay your student loan

If you struggle to repay your loan, there are several options you can explore:

Repayment Assistance Plan (RAP): The federal government’s RAP helps eligible borrowers by setting monthly payments based on what you can reasonably afford. It’s intended to prevent undue financial hardship; eligibility details and applications are available through federal student aid resources.

Debt consolidation: Consolidating multiple debts into one loan can lower your monthly payment or secure a better interest rate. Consolidation is generally more relevant for private debts or for loans in default; it doesn’t erase the debt but can simplify repayment.

Consumer proposal: A consumer proposal negotiated through a licensed insolvency trustee can combine debts into a single, reduced monthly payment, eliminate interest, and reduce the principal. Student loans may only be eligible for inclusion if a certain number of years have passed since you stopped being a student.

Bankruptcy: In certain circumstances, student loans can be discharged in bankruptcy if a specified number of years have passed since you left school, or sooner if repaying would cause undue hardship. Bankruptcy has long-term credit implications, so it’s typically a last resort.

Final thoughts

Student debt is a serious consideration, but it’s not automatically harmful if you borrow thoughtfully and take steps to limit costs. Explore scholarships, grants and paid opportunities, create a strict budget, and research repayment supports like RAP before and after you graduate. If you need one-on-one help with budgeting or understanding your options, seek free credit-counselling services from a certified counsellor who can review your situation and suggest the best course of action.

Read more on student debt:

• Are rent loans the answer to rising rent costs?
• The best student credit cards in Canada
• How to afford moving out as a student or young adult
• How to manage money as a student