Defaulted Loans

Reg.: Schedule 2, s. 8(3)(b)

Defaulting on student loan payments has an impact on a student’s eligibility for future funding. If a student defaults on either a Canada Student Loan (full- or part-time), Canada Apprentice Loan or an Alberta Student loan, restrictions are applied and all types of assistance (full- or part-time) administered through Alberta Student Aid may be denied until the defaulted loans have been rehabilitated.

If a borrower defaults on their loan, steps will be taken to recover the debt. These steps can include:

  • reporting to a credit agency
  • using a private collection agency
  • taking legal action
  • recovery through the Canada Revenue Agency Refund Set-Off Program that allows the province to recover a student’s defaulted Alberta Student Loans from the student’s income tax refund or GST credits.

Loan Rehabilitation

Reg.: Schedule 2, s. 8(3)(b)

Rehabilitating Alberta Student Loan Defaults and Grant Overpayments

In order to be considered for further student loans and grants, a student:

An Alberta student loan is delinquent if the loan is two months past due from the last payment due date or has 90 calendar days of interest owing. Options such as change of repayment terms, repayment assistance and/or reinstatement to interest free status may be available to these students.

  • With a defaulted Alberta student loan or grant overpayment in collections at Service Alberta – Crown Debt Collections must pay all outstanding interest and make the equivalent of two months of required payments.

Alberta student loans are transferred to Service Alberta – Crown Debt Collections when 150 calendar days past due. The student must contact Service Alberta – Crown Debt Collections to rehabilitate their defaulted loan and/or grant overpayment.

Exception:

A student is not required to rehabilitate their Alberta student loan or grant overpayment if the default occurred prior to August 1, 2001, unless legal action was taken by the Minister to collect the debt and a judgment was obtained or a settlement was reached. If a judgment was obtained, the student must pay the judgment order in full. If a settlement was reached, the student must pay the settlement amount in full.

  • Approved for Special Consideration on an Alberta student loan due to a permanent disability must pay all outstanding interest and make the equivalent of two months of required payments.

Exception:

A student is not required to rehabilitate their Alberta student loan debt if the approval for Special Consideration occurred prior to August 1, 2001.

  • With an Alberta student loan or grant overpayment for which legal action was taken by the Minister to collect the debt and a judgment was obtained or a settlement was reached, must pay the judgment order or settlement amount in full.

A student with a defaulted Alberta student loan still held at a financial institution is not required to rehabilitate their Alberta student loan debt.

Rehabilitating Canada Student Loan Defaults

Students with a Canada Student Loan that has been restricted must contact National Student Loans Service Centre and comply with Canada Student Loans Program’s requirements to rehabilitate the default. The rehabilitation requirements are found on the Government of Canada website under Rehabilitate your Canada Student Loan.

Bankruptcy

Reg.: Schedule 2, s. 8(3)(c)

Under the Bankruptcy and Insolvency Act (Canada), student loans are not automatically discharged when the individual is discharged from their bankruptcy until a minimum of:

  • 7 years have passed since the borrower ceased to be a student, or
  • 5 years have passed since the borrower ceased to be a student, in the case of exceptional financial hardship.

A borrower is required to rehabilitate their loans if the borrower files for protection under the Bankruptcy and Insolvency Act (Canada) – this includes but is not limited to:

  • filing a consumer proposal
  • filing a notice of intention to file for bankruptcy
  • filing an orderly payment of debts (such as a consolidation order or any other document filed seeking relief under Canada or Alberta law).

Unless the student loans are discharged by a court order, the loans are considered to be in default, and additional rules apply to rehabilitating loans that were included in a bankruptcy.

Receiving Additional Student Loans After Bankruptcy

When a student loan borrower declares bankruptcy or files for protection under the Bankruptcy and Insolvency Act (Canada) while in a current full-time or part-time program of study, the student may maintain interest free status and continue to receive Alberta Student Aid funding for up to three consecutive years to complete the current program of study, provided the student does not take a break in studies of six months or longer.

When a student loan borrower declares bankruptcy or files for protection under the Bankruptcy and Insolvency Act (Canada) during repayment, the borrower is restricted from receiving additional Alberta Student Aid funding until either:

  • The borrower pays off all Canada and Alberta Student Loans in full, or
  • The borrower receives a court-ordered discharge from all Canada and Alberta Student Loans, and three years have passed since the date of the court-ordered discharge.

Acceptable documentation may include a copy of the following:

  • for bankruptcy where Canada and Alberta Student Loans were included – Absolute Order of Discharge noting the inclusion of Canada and Alberta Student Loans.
  • for consumer proposal – Certificate of Full Performance.

A student loan borrower who declares bankruptcy during repayment may be approved for:

  • repayment assistance, or
  • interest free status if the borrower returns to full-time or part-time studies

provided their Alberta Student Loans are in good standing.