Debt relief firm calls for change in laws on discharging student debt
Student debt contributes to a record-high rate of over one in six insolvencies, or 17.6 per cent, according to a study conducted by Ontario-based Hoyes, Michalos & Associates Inc., a licensed insolvency trustee firm.
The study found that the average insolvent debtor with student loans still owes $14,729 in student loans representing 32 per cent of their unsecured debt, years after getting out of school.
“Nine years ago, student debt insolvencies were just under 13 per cent of all insolvencies we filed,” said Ted Michalos, one of the firm’s co-founders. “Today, 18 per cent of the clients we see are struggling with student debt. It's an epidemic."
The increase was attributed to various reasons, such as rising tuition and residence costs pressuring students to borrow more. After finishing school, many graduates find themselves working part-time or in minimum- to low-wage jobs. They may not be able to find employment in their field of study that pays enough to repay their student loans, the study found.
In Canada, government-guaranteed student loan debt is automatically discharged in a bankruptcy or consumer proposal if the debtor has been out of school for a minimum of seven years. Meanwhile, private student loan debt has no waiting period.
“We believe it's time to eliminate the waiting period to have government student debt discharged through a bankruptcy or consumer proposal,” said Doug Hoyes, the firm’s other co-founder. “There is no such waiting period for private student loans, and there is no difference in how students use either government borrowing or private borrowing. It is inequitable to penalize a student just because they used government student loans when another student using private debt can get relief immediately.”