Student Loan Default in Canada: What Happens Next (2026 Guide)

Student loan default in Canada moves faster than most people expect — and the government has collection tools that private creditors do not. Understanding the exact timeline and your options at each stage is the difference between rehabilitation and years of enforced collection.

Source: Default definitions and collection procedures from Canada Student Financial Assistance Act, the National Student Loans Service Centre, and Canada Revenue Agency. Insolvency treatment from Bankruptcy and Insolvency Act Section 178(1)(g).

What “Default” Actually Means

Default is a legal status, not just being behind on payments. For federal NSLSC loans, default is triggered at 270 days (9 months) of non-payment. At that point:

1. The entire outstanding balance — principal, accumulated interest, fees — becomes immediately due in full
2. Your file transfers to CRA for collection
3. Your credit rating drops to R9 (collection item)
4. Rehabilitation options narrow significantly
5. CRA’s enforcement powers activate

Provincial student loans have different timelines. Most provinces trigger default at 90–180 days and use their own collection agencies or the federal CRA mechanism for enforcement.

The Default Timeline: What Happens Month by Month

The most important window: Between default declaration and the registration of a CRA judgment certificate, rehabilitation is still available. Once the certificate is registered, you lose the rehabilitation option and must either pay in full, enter a structured settlement with CRA, or use formal insolvency.

What CRA Can Do Without a Court Order

This is the key difference between student loan default and credit card default. CRA acts as NSLSC’s collection agent for defaulted federal student loans and has powers that private creditors do not:

• Wage garnishment: Issue a Requirement to Pay directly to your employer — no lawsuit, no court judgment, no notice period
• Bank account setoff: Seize funds in accounts at any federally regulated financial institution
• Tax refund interception: Apply any tax refund, GST/HST credit, or Canada Child Benefit against the loan balance
• CRA Set-Off Program: Redirect any federal payment you are owed — EI, CPP, OAS — to the student loan balance

For comparison, a private credit card company must file a lawsuit (4–8 months), obtain a judgment, then apply for a garnishment order before touching your wages. CRA skips every step.

If you receive a wage garnishment notice from CRA for a student loan, you have days — not weeks — to act. See how to stop wage garnishment.

Credit Impact of Default: R9 and the 6-Year Clock

At default, both Equifax and TransUnion change your rating on that account to R9 — their lowest tier, indicating “bad debt placed for collection or bankruptcy.” This affects:

• All new credit applications (personal loans, mortgages, credit cards)
• Rental applications (many landlords pull credit)
• Some employment background checks (financial roles)

The 6-year reporting clock starts from the date of last activity on the account — which, in default, is typically the date of last payment before default. If you made your last payment in March 2024 and defaulted in December 2024, the R9 entry falls off Equifax and TransUnion in March 2030.

Paying the debt, settling it, or including it in a consumer proposal does not reset this clock. It closes the account, but the R9 history remains for the remainder of the 6-year period.

Rehabilitation: Restoring a Defaulted Federal Loan

The Repayment Assistance Plan (RAP) is available before default. After default, a separate rehabilitation process applies.

Post-default rehabilitation requires:

1. Making 9 consecutive voluntary payments on an agreed schedule (typically 10–15% of your monthly income)
2. Applying through NSLSC before CRA registers a judgment certificate
3. Completing both phases of the repayment assistance plan

Once rehabilitated, the loan returns to NSLSC, and the default status is removed from NSLSC’s records. However:

• The R9 credit rating history remains until the 6-year mark
• Interest that accumulated during default is capitalized into the principal
• CRA’s collection file closes but the balance you owe is often higher than when you defaulted

Rehabilitation makes sense if: you are under 7 years from end of studies (so bankruptcy would not discharge the loan anyway), your income supports the payment schedule, and you want to preserve access to future student loans or professional licensing that requires clear student loan standing.

When Formal Insolvency Is the Better Option

Rehabilitation is not always the right path. A consumer proposal or bankruptcy may be better if:

• You have other unsecured debts beyond student loans (credit cards, CRA tax debt, lines of credit) — a consumer proposal resolves everything together
• You are 7+ years from end of studies — bankruptcy fully discharges the student loan
• CRA has already started garnishing — only formal insolvency stops it immediately under Section 69 of the BIA
• The balance has grown significantly through capitalized interest and penalties — a consumer proposal can settle the full balance at a fraction of the total

A consumer proposal filed with a Licensed Insolvency Trustee stops all collection the moment it is filed electronically with the OSB. The stay of proceedings under Section 69 applies to federal student loan collection. This means CRA must immediately halt garnishment, tax refund seizure, and all other collection steps.

Use the consumer proposal calculator to estimate what settlement amount your creditors would receive and whether it exceeds what CRA expects through continued collection.

What to Do Right Now

The free consultation with a Licensed Insolvency Trustee is the zero-risk step. They will tell you exactly where you stand on the 7-year rule, whether rehabilitation makes sense in your file, and what a consumer proposal would cost. Find one near you.