Is it possible to include student loans in debt consolidation in Canada?


As you know, higher education comes at a cost in Canada. In such a situation, loans come to the students’ rescue. But, the real problem lies in the repayment of student loans. On average, students in Canada have student loan debt of around $15,000. Because there is massive pressure on the students to pay off student loans, they look for options like student loan consolidation and refinancing, among other options. But, is student debt consolidation a good option.

This blog post looks at the advantages and disadvantages of student loan consolidation and everything associated with it. Be ready to look at the 9 sub-topics of the current topic “Is it possible to include student loans in debt consolidation?

1. Types of Student Loans in Canada
2. Reasons for the student loan debt crisis in Canada
3. What is student loan debt consolidation, and what are its types?
4. How does debt consolidation work in the Canadian context?
5. Benefits of consolidating student loans and Limitations of consolidating student loans
6. Here are the Options for student loan debt consolidation
7. What about loan repayment failure?
8. Let’s now see how to get your student loans out of collections.
9. Here’s how to not pay student loans in Canada/ What to do if you can’t afford student loan repayments?
10. FAQs

Types of Student Loans in Canada

Canada has three types of student loans, as given below:

Federal Loans

These loans are offered under the Canada Student Loan Program (CSLP) and are provided at fixed or variable rates.

Provincial Loans

These loans have different interest rates depending on the province or territory to which it belongs.

Lines of Credit or Private Student Loans

These loans with higher interest rates are made available through banks or other lenders if federal and provincial loans cannot cover the tuition fees.

Some provinces allow the consolidation of federal and provincial loans upon completing graduation so that you get to make one payment. You have to pay for federal and provincial loans for other provinces separately.

Reasons for the student loan debt crisis in Canada

Here are the reasons:

High tuition fees

The tuition fees have increased over the years, thus making it difficult for students to pay off their student loans.

High interest rates

The problem with some student loans is high interest rates.

Volatile Job Market

The problem with some student loans is high interest rates.

Minimum Wage jobs or no-pay internships

Many graduates had to settle for minimum wage jobs or no-pay internships just to survive. It is difficult for graduates to pay for basic necessities with a minimum wage, let alone student loans.

No or Low wage growth

Some people had received the opportunity for high-paying jobs, but no or low wage growth against rising inflation has made it difficult for them to pay off their debts.

What is Student Loan Debt Consolidation, and What are its types?

A Student loan debt consolidation occurs when various debts and loans are combined to form a single loan, typically with lower rates of interest, lower monthly payments, or in some cases, both these.

Debt Consolidation Loans can be of two types. They are:

Secured Loans

Secured Loans involve an asset like a car or a house that acts as the loan collateral that a borrower can offer a lender to secure a loan.

Unsecured Loans

Unsecured loans do not involve assets and are challenging to obtain, sometimes, owing to their higher rates of interest and lower amounts for qualification. However, the rates of interest are lower than those charged on credit cards.

The rates of interest for both types of debt consolidation are typically fixed.

How does debt consolidation work in the Canadian context?

Let’s understand the circumstances under which students can obtain a student consolidation:

• The student has already proved to potential lenders that they are trustworthy by making school loan payments on time.

• The student has a decent credit score.

• The student has earned a well-paying and secure job.

• The student has a cosigner who has a decent credit score or a decent job.

In the Canadian context, is student debt consolidation common? The answer to the above question is, “No, student debt consolidation is not common in the Canadian context.” Why is it uncommon in Canada to include student loans in debt consolidation? That’s because it can lead to creating a loophole in the bankruptcy protection rules. As per the bankruptcy protection rules, a student who has graduated from the school for seven years can get their student loans included in a bankruptcy proceeding or consumer proposal.
There’s one option for Canadian students, and that is using the money from remortgaging their home to repay student loans or debts.


Benefits of consolidating student loans and Limitations of consolidating student loans


Let’s look at the benefits of consolidating student loans first:
• Consolidation of your government-assured student loans with a bank will make you liable to the bank for payment. Banks cannot seize tax refunds if you cannot pay back the loan, unlike the government, which can.

• When you find a different lender for consolidating student loans, you will get the chance to negotiate the interest rates and get a favorable interest rate.

• Because of debt consolidation, you can actually make it possible for your credit scores to improve, which may have been affected due to non-payments in the past.

• Your negotiation may lead to lower monthly payments if you decide to go for debt consolidation.


Let’s now look at the limitations of consolidating student loans:

• You will be eligible to get a Repayment Assistance Plan if you keep considering the Government of Canada as your lender. As a benefit, you will get a longer window for payment. That may not be possible if a bank is your lender.

• You cannot include debt consolidation in tax deductions, but you can include student loans in tax deductions.

• The bank may charge a higher rate of interest in case your credit score is poor or you have a short job history.

Options for student loan debt consolidation

Student Loan Repayment Assistance

Government-sponsored assistance plans like Repayment Assistance Plan or RAP will come to your rescue if you cannot pay off your student loan debts after completing six months grace period or you are lagging as far as the payments are concerned. Through RAPs, you can reduce the payments or even halt the process entirely as per your financial circumstance.

Debt Consolidation Program (DCP)

A DCP allows you to work with a certified credit counselor who will use negotiation skills to halt or reduce the interest on your student loan debt. Because a student loan may already be eligible for collections if they have to come under DCP, it is better to get other unsecured debts under DCP so that you can better manage your student loan debts.

Guidance from a certified credit counselor

Before going for any other program, you need proper budgeting skills. A certified credit counselor can help you by providing the appropriate guidance.

What about loan repayment failure?

If you cannot repay your loan or have not been able to pay for nine months, your federal loan goes to the CRA or Canada Revenue Agency for collections. But what happens when your student loan goes to CRA for collections? If that happens, you can’t get student aid.

How to get your student loans out of collections?

It would be best to get in touch with the CRA if your student loans were in collections. You also need to check:

• If you are eligible to bring your federal student loan up to date.
• If you can make payments for two months and go for:

1. Paying off student loan interests that are outstanding.
2. Including the unpaid interests in the student loan balance.

Once the above requirements are met, you can get in touch with the National Students Loan Service Center or NSLSC to get a new repayment schedule.

Do you have the question, “What happens if I don’t pay student loans in Canada?” in mind? If yes, for the answer, you can refer to the above section for the solution where we have mentioned student loans going to the CRA for collections if you cannot pay student loans. In addition, it will affect your credit score, which may make you unreliable in the eyes of future creditors.
But, how will you stop paying student loans in Canada?

Here’s how to not pay student loans in Canada/
What to do if you can’t afford student loan repayments?

If you have a private student loan, it will come under the purview of the provincial statute of limitation laws. In other words, if you have not paid student loans for two years, you can defend a lawsuit by saying that the loan is too old to make the debt fall off your credit report after the completion of six years.

There is no limitation period for collections as far as Government loans are concerned. You can halt payments for Government student loans in Canada only by filing a bankruptcy or a consumer proposal.


Is refinancing the same as debt consolidation or student debt consolidation?

Though refinancing and debt consolidation are used interchangeably, they are not the same. In refinancing, you pay off one loan in the form of a new loan that typically has a lower rate of interest or more favorable terms. On the other hand, in debt consolidation or student debt consolidation, you pay off multiple debts in the form of one consolidated debt at a lower rate of interest or more favorable terms.

Are international students eligible for student loans in Canada?

Yes, international students are eligible for private student loans in Canada, but options are less than for Canadian students. The student needs to have a private lender-supported student loan program.

Are Canadian students eligible to file bankruptcy if they have graduated from school less than seven years ago?

Yes, that is possible. But, you can file insolvency for debts like credit card debts, bank loans, and payday loans so that it becomes easier to pay off student loans.

Are Canadian students eligible to file for insolvency for the second time once they have graduated from school seven years ago?

Yes, they are eligible, but it will further affect the credit score. Filing for a consumer proposal will be the wisest option in such a case.


Student loan debt consolidation is uncommon in Canada. You can look at the other options that have been listed above. The main aim is to keep your credit score high so that future lenders find you trustworthy. The best way to deal with piling up student loans is to plan your finances so that you can make monthly payments to pay off student loan debts. After all, who doesn’t want to be debt-free and tension-free?