Student Loan Debt in Canada: Every Option When You Can't Pay (2026)

If you cannot pay your student loans in Canada, your first move is to apply for the Repayment Assistance Program (RAP) through the National Student Loans Service Centre. RAP can drop your monthly payment to $0 based on income and family size, and it keeps your account in good standing while you figure out next steps. If you also owe credit card debt, lines of credit, or CRA tax debt on top of student loans, a Licensed Insolvency Trustee can file a consumer proposal that eliminates the non-student debt immediately — while RAP handles the student loan side. You have more options than you think, and most of them cost nothing to explore.

Aisha in Brampton graduated from York University in 2022 with $34,000 in OSAP debt, a $12,000 Visa balance she ran up covering rent during her final year, and a $4,200 CRA bill from freelance tutoring income she forgot to report. Her minimum payments totalled $780 a month on a $3,100 take-home salary. She thought her only option was to stop paying everything. It was not. Here is the complete picture of what happens with student loan debt in Canada and every path out.

The Student Loan Landscape in Canada

Canada’s student loan system splits into two layers — federal and provincial — and understanding which loans you carry determines which repayment tools are available.

Federal student loans are administered by the National Student Loans Service Centre (NSLSC), which is run by a contracted service provider on behalf of Employment and Social Development Canada (ESDC). If you received Canada Student Loans or Canada Student Grants, your federal loan lives at the NSLSC. Interest on federal student loans was permanently eliminated in 2023, meaning your federal balance no longer grows.

Provincial student loans are administered by each province separately:

Ontario, BC, and Nova Scotia have integrated their provincial loans with the NSLSC, meaning you make a single payment covering both federal and provincial portions. Alberta and Quebec administer their own loans separately, which means separate payment schedules, separate default timelines, and separate collection processes.

The critical point: federal loan interest is zero, but most provincial loan portions still charge interest. On a $30,000 combined loan with $18,000 federal and $12,000 provincial at prime + 1%, you are paying interest only on the $12,000 — roughly $70 a month in 2026. That matters when you are deciding which debt to prioritize.

The 7-Year Rule: When Student Loans Become Dischargeable

Government student loans occupy a special category under the Bankruptcy and Insolvency Act. Unlike credit cards, personal loans, or medical debt, student loans cannot be automatically discharged in bankruptcy or a consumer proposal unless enough time has passed.

The rule: 7 years must have elapsed since you ceased to be a full-time or part-time student. Not 7 years since you borrowed. Not 7 years since graduation. Seven years from the last date you were enrolled in any qualifying program.

This catches people. Kevin in London, Ontario graduated with his undergraduate degree in 2019, then took a part-time college certificate in 2021. His 7-year clock restarted in 2021 when the certificate ended — meaning his student loans are not dischargeable until 2028 at the earliest.

There is a hardship exception at 5 years. A court can discharge student loans after 5 years if you demonstrate that you acted in good faith toward repaying the loans and that you will continue to experience financial difficulty making repayment unlikely. This is not automatic — it requires a court application, and success depends on your specific circumstances.

Read the full breakdown of how the 7-year rule works in practice, including how to calculate your exact eligibility date.

The practical implication: if your student loans are less than 7 years old, you need a strategy that treats them separately from your other debts. That is where RAP comes in.

Repayment Assistance Program (RAP): Your First Line of Defence

RAP is the most underused tool in Canadian student debt. It is free, it protects your credit, and it can reduce your payment to zero. Yet most borrowers who qualify never apply.

How RAP Works

RAP adjusts your required monthly payment based on your family income and family size. You apply every 6 months through the NSLSC. If your income is low enough, your payment drops to $0 — and you remain in good standing. No missed payments, no credit damage, no default.

Stage 1 (months 1 to 60): Your affordable payment covers interest only or less. The government pays any interest your payment does not cover on the federal portion. The provincial portion depends on your province’s rules.

Stage 2 (months 61 to 180): If you are still on RAP after 5 years, the government begins paying down your principal as well as interest on the federal portion. After a maximum of 15 years on RAP (or 10 years for borrowers with a permanent disability), any remaining federal balance is forgiven entirely.

Who Qualifies

You qualify for RAP if your student loan payments exceed what the government considers affordable based on your income. The general threshold: if you are single and earning under approximately $40,000 gross, your payment will likely be $0. The threshold rises with family size.

These thresholds are approximate and adjusted periodically. The exact calculation depends on your family income, family size, and loan balance. Apply through the NSLSC portal — the application takes about 15 minutes.

Why Most People Should Apply Before Doing Anything Else

Priya in Mississauga owed $26,000 in Canada Student Loans and $9,000 in OSAP provincial loans. She was earning $36,000 at a nonprofit. Her standard payment was $380 a month. She applied for RAP and her payment dropped to $0 for the federal portion. She redirected that $380 toward her provincial loan balance and a $6,500 credit card she was carrying. Within 18 months, the credit card was paid off and the provincial loan was down to $5,200.

RAP is not a failure. It is a government program designed for exactly this situation. Use it.

Not sure if RAP is enough? If you owe student loans plus credit card debt, CRA debt, or other unsecured debt, a Licensed Insolvency Trustee can assess your full picture in a free consultation. They see mixed-debt situations every day. Find a Licensed Insolvency Trustee near you.

What Happens When You Default on Student Loans

If you stop paying and do not apply for RAP, here is the timeline:

Day 1 to 270: Your loan is classified as delinquent. The NSLSC sends letters and makes phone calls. Your credit score starts dropping after the first missed payment. After 90 days of non-payment, the delinquency is reported to Equifax and TransUnion.

Day 270: Your federal student loan officially defaults. The NSLSC transfers your file to the Canada Revenue Agency for collection. This is the point of no return for your credit — the default appears as an R9 rating on your credit report.

After transfer to CRA: The CRA takes over collection with federal powers that provincial collection agencies do not have. CRA can:

• Garnish your wages without a court order — up to 50% of your net pay
• Seize your tax refund and GST/HST credit payments
• Freeze your bank account without prior notice
• Intercept federal payments including certain benefits

Tariq in Calgary defaulted on $22,000 in Canada Student Loans after being laid off from an oil services company. He ignored the NSLSC letters. Nine months later, CRA issued a Requirement to Pay to his new employer and started taking $680 from every biweekly paycheque. He had no warning because CRA does not need a court order.

Provincial loan default follows a separate but similar path. Ontario sends defaulted OSAP provincial loans to a collection agency. Alberta sends defaults to Alberta Treasury Board. Quebec sends defaults to Revenu Québec. Provincial collectors generally need a court judgment before garnishing wages, but the process is faster than you expect.

The key point: default does not make the debt go away. It makes the debt more expensive and harder to manage. Applying for RAP before default keeps all of your options open.

Can CRA Garnish for Student Loans?

Yes. This surprises many borrowers who associate CRA only with tax debt, but CRA is the federal government’s collection arm for defaulted student loans too.

Once the NSLSC transfers your file, CRA treats your student loan like any other federal debt it collects. The Requirement to Pay process is identical to what CRA uses for income tax arrears:

1. CRA sends a Requirement to Pay to your employer or bank
2. Your employer must comply — they face personal liability if they do not
3. CRA can garnish up to 50% of net pay for employees, or 100% of invoiced amounts for contractors
4. CRA can simultaneously seize tax refunds, GST/HST credits, and other federal payments

There is no statute of limitations on CRA’s ability to collect federal student loan debt. Provincial limitation periods that protect you from credit card lawsuits (2 years in Ontario, BC, and Alberta) do not apply to CRA collection.

The only ways to stop CRA garnishment for student loans:

• Pay the balance in full or negotiate a payment arrangement with CRA
• File a consumer proposal or bankruptcy (triggers an immediate stay of proceedings — but student loans survive if you are inside the 7-year window)
• Re-enter RAP if your loan has not been fully transferred and the NSLSC can rehabilitate your account

CRA already garnishing your pay? A consumer proposal stops all garnishment the day it is filed — even for debt that survives the proposal. Talk to a Licensed Insolvency Trustee for free to see how a proposal works in your specific situation.

Mixed Debt: Student Loans + Credit Cards + CRA

Here is the reality most guides skip: almost nobody has only student loan debt. The typical borrower who contacts a Licensed Insolvency Trustee about student loans also carries $8,000 to $25,000 in credit card debt, a car loan they are struggling with, and sometimes a CRA balance from unreported income or CERB repayment.

This is where strategy matters more than any single tool.

Scenario — Jasmine in Ottawa:

• $28,000 Canada Student Loans (graduated 2023 — inside 7-year window)
• $14,000 credit card debt across 3 cards
• $5,500 CRA balance from CERB overpayment
• Income: $42,000/year, take-home $2,800/month
• Minimum payments: $1,120/month (40% of take-home)

Jasmine cannot bankrupt her way out of the student loans because she is only 3 years past graduation. But she does not need to. Here is the split strategy her LIT recommended:

1. Apply for RAP — federal student loan payment drops to $0 based on income and family size
2. File a consumer proposal for the $14,000 credit card debt and $5,500 CRA debt — offer 30 cents on the dollar ($5,850) paid over 48 months at $122/month
3. Student loans excluded from proposal — RAP keeps them in good standing at $0/month
4. Total monthly payment: $122 instead of $1,120

The consumer proposal eliminates the credit card and CRA debt. RAP manages the student loan. Jasmine goes from drowning to breathing in a single week.

This split strategy is the most common approach LITs use for borrowers with mixed debt inside the 7-year window. It works because the consumer proposal’s stay of proceedings stops all collection on the included debts, while RAP independently manages the excluded student loans.

All Your Options Compared

Every path has trade-offs. This table shows how each option handles student loans specifically, plus your other debt.

The split strategy — RAP for student loans, consumer proposal for everything else — is what LITs recommend most often when borrowers carry mixed debt and their student loans are inside the 7-year window. It addresses every debt without waiting years for eligibility.

Use the consumer proposal calculator to estimate what a proposal would cost for your non-student debt, and compare all options side by side.

When to Talk to a LIT About Student Loan Debt

A Licensed Insolvency Trustee is not just for bankruptcy. LITs are the only professionals in Canada authorized to file consumer proposals and administer bankruptcies under the Bankruptcy and Insolvency Act. The initial consultation is free, confidential, and comes with no obligation.

Talk to a LIT if any of these apply:

• Your total debt payments exceed 30% of your take-home pay. Jasmine was at 40%. Anything above 30% signals unsustainability.
• You are inside the 7-year window but drowning in non-student debt. The split strategy only works if someone files the consumer proposal for you — and only a LIT can do that.
• CRA has started garnishing your wages for student loans. A consumer proposal triggers an immediate stay of proceedings that stops all garnishment the day it is filed.
• You have been on RAP for years and your other debts keep growing. RAP handles the student loan, but it does nothing for the credit cards charging 20% interest.
• You are past the 7-year mark and want a clean slate. Your student loans are now dischargeable. A consumer proposal or bankruptcy can eliminate them along with everything else.
• A collection agency or CRA is threatening legal action. Do not negotiate alone when legal tools exist that bind all creditors at once.

Daniel in Vancouver owed $31,000 in student loans (graduated 2018 — past the 7-year mark in 2025), $19,000 in credit card debt, and $3,800 to CRA. His LIT filed a consumer proposal that included all of it — student loans, credit cards, and CRA. He offered 25 cents on the dollar. Creditors accepted. His payment: $224 a month for 60 months instead of $1,340 in minimum payments. Total savings: over $40,000.

That consultation took 50 minutes and cost nothing.

Ready to see your options? A Licensed Insolvency Trustee will map every debt you carry, calculate your RAP eligibility, and tell you exactly what a consumer proposal or bankruptcy would look like for your situation. The consultation is free and confidential. Find a Licensed Insolvency Trustee near you.

Bottom Line

Student loan debt in Canada is not one problem — it is a set of problems with different rules, different timelines, and different solutions. Federal loans carry no interest but default to CRA collection. Provincial loans still charge interest but follow provincial rules. The 7-year rule blocks early discharge but does not block the split strategy that eliminates your other debt while RAP manages the student portion.

The most expensive thing you can do is nothing. Ignoring student loan payments leads to default, CRA garnishment, and a credit score crater that takes years to repair. The second most expensive thing is paying minimum payments on everything when legal tools exist to reduce or eliminate what you owe.

Start with RAP. If that is not enough, talk to a LIT. The consultation is free, the advice is specific to your situation, and you walk out with a plan — whether that plan is RAP alone, a consumer proposal, bankruptcy, or something else entirely.

You borrowed money to invest in yourself. That was not a mistake. The system is complicated, but there is a path through it. Find a Licensed Insolvency Trustee near you and take the first step.

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This article is for informational purposes only and does not constitute legal or financial advice. Student loan rules, RAP thresholds, and insolvency law are subject to change. Consult a Licensed Insolvency Trustee or qualified professional for advice specific to your situation.

Last updated: April 1, 2026