Defaulted Loans

2023-2024 Operational Policy & Procedures

Introduction

Chapter 1:
Eligibility for Student Loans and Grants

Chapter 2:
Full-Time Student Loans and Grants

Chapter 3:
Part-Time Student Loans and Grants

Chapter 4:
Disability: Permanent Disability or Persistent or Prolonged Disability

Chapter 5:
Review Process

Chapter 6:
Repayment

Chapter 7:
Designation for Student Loans and Grants

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:

With a delinquent Alberta student loan at the Alberta Student Aid Service Centre must bring the loan up-to-date and into good standing.

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 Treasury Board and Finance – Crown Debt Collections must pay all outstanding interest and make the equivalent of two months of required payments.

Alberta student loans are transferred to Treasury Board and Finance – Crown Debt Collections when 150 calendar days past due. The student must contact Treasury Board and Finance – 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 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 Financial Assistance Program’s requirements to rehabilitate the default. The rehabilitation requirements are found on the Government of Canada website under Rehabilitate your Canada Student Loan.

Implications of Filing for Protection Under the Bankruptcy and Insolvency Act (Canada)

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

This section addresses the implications of filing for protection under the Bankruptcy and Insolvency Act (Canada) (BIA) on student loans and the impacts on a student loan borrower’s eligibility for further Alberta Student Aid funding. Filing for protection under the BIA includes:

filing an orderly payment of debts,
filing a consumer proposal, and
filing for bankruptcy.

Filing for Protection under the BIA While in Studies

When a student loan borrower files for protection under the BIA while in a current full-time program of study, the borrower 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.

A borrower is eligible for interest-free status and additional Alberta Student Aid funding until the earlier of:

the end of their program of study,
three years after the end date of the period of study during which the bankruptcy related event occurred (i.e., date of filing), or
three years after the date of filing if the bankruptcy-related event occurs between study periods.

A borrower who is still completing their program of study when three years have elapsed from the date of filing may complete their current study period before going into repayment.

If a student loan borrower is in part-time studies, they will no longer be eligible to maintain interest free status for their federal loans, their federal loans will enter repayment, and the borrower cannot receive further federal funding. The borrower may maintain interest free status for their provincial loans and continue to receive provincial part-time 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.

Filing for Protection under the BIA While in Repayment

A student loan borrower who has filed for protection under the BIA during repayment may be approved for:

repayment assistance, or
interest free status if the borrower returns to full-time or part-time studies
for their Alberta Student Loans provided their Alberta Student Loans are in good standing.

A borrower should contact the National Student Loan Service Centre to discuss their eligibility for repayment assistance for their Canada Student Loans.

Receiving Additional Student Loans after Filing for Protection under the BIA (Canada)

Orderly Payment of Debts (OPD)

A borrower whose student loans have been included in a provincial arrangement for the orderly payment of debts may apply for additional Alberta Student Aid funding once they have received their Final Report.

A copy of the Final Report must be provided as confirmation that the borrower has successfully completed the Orderly Payment of Debts program.

In Alberta, Money Mentors is the provider of the Orderly Payment of Debts (OPD) program, a debt consolidation program legislated under the BIA and monitored by the Province of Alberta.

Bankruptcy or Consumer Proposal

Under the BIA, if it has been more than seven years since the borrower ceased to be a student when the borrower files for bankruptcy or files a consumer proposal, student loans will be dissolved (or released) when the borrower is discharged from bankruptcy or upon completion of a consumer proposal.

In the case of exceptional financial hardship, a borrower may apply to the Court for a discharge after five years have passed since the borrower ceased to be a student.

Unless otherwise determined by the Minister, when a borrower who is in repayment files for bankruptcy or files a consumer proposal, the borrower is restricted from receiving additional Alberta Student Aid funding until the following conditions are met.

Other situations not described below may be considered on a case by case basis.

Unless the student loans are dissolved (or released), the loans are considered to be in default.

In Bankruptcy:

Scenario	Impact on Additional Funding and Waiting Period	Documentation Required
A borrower filed for bankruptcy and student loans were owed but were not dissolve through bankruptcy.	Not eligible for additional Alberta Student Aid funding until borrower pays off all Canada and Alberta student loans. No waiting period after all Canada and Alberta student loans are repaid in full.	None
A borrower filed for bankruptcy and had their student loans discharged through a court order after Court determines the borrower has met criteria for exceptional financial hardship.	Restricted from receiving additional Alberta Student Aid funding until three years have passed since the date of court ordered discharge.	A copy of the court order which indicates all student loan debts are discharged (e.g., Absolute Order of Discharge).
A borrower filed for bankruptcy after it had been more than 7 years since borrower ceased to be a student and student loans were dissolved (or released) when borrower was discharged from bankruptcy.	Restricted from receiving additional Alberta Student Aid funding until three years have passed since the date of discharge.	A copy of: Certificate from Bankruptcy Trustee (for first or second time bankrupts) that the borrower has been automatically discharged, or Court order which indicates all student loan debts are discharged (e.g., Absolute Order of Discharge).

Consumer Proposal:

Scenario	Impact on Additional Funding and Waiting Period	Documentation Required
A borrower filed a consumer proposal and student loans were owed but were not explicitly released through completion of the consumer proposal.	Not eligible for additional Alberta Student Aid funding until borrower pays off all Canada and Alberta student loans. No waiting period after all Canada and Alberta student loans are repaid in full.	None
A borrower filed a consumer proposal and student loans were explicitly released through completion of the consumer proposal.	Restricted from receiving additional Alberta Student Aid funding until three years have passed since the date of completion of consumer proposal.	A copy of the Certificate of Full Performance must be provided as proof that the borrower has satisfied the terms of the consumer proposal.
A borrower filed a consumer proposal and had their student loans discharged through a court order after the borrower was determined by the Court to have met criteria for exceptional financial hardship.	Restricted from receiving additional Alberta Student Aid funding until three years have passed since the date of the court ordered discharge.	A copy of the court order which indicates all student loan debts are discharged (e.g., Absolute Order of Discharge).
A borrower filed a consumer proposal after it had been more than 7 years since borrower ceased to be a student and student loans were explicitly released through completion of the consumer proposal.	Restricted from receiving additional Alberta Student Aid funding until three years have passed since the date of completion of the proposal.	A copy of the Certificate of Full Performance must be provided as proof that the borrower has satisfied the terms of the consumer proposal.

Canada Student Loan Forgiveness for Family Doctors and Nurses

Family doctors, residents in family medicine, nurse practitioners, and nurses that practice in under-served rural or remote communities may be eligible to have a portion of their Canada Student Loans forgiven.

Effective November 3, 2023, the maximum amount of forgivable Canada Student Loans will increase by 50% for eligible family physicians, nurses and nurse practitioners working in under-served rural and remote communities. This will allow for up to $30,000 in loan forgiveness over five years for a nurse or nurse practitioner and up to $60,000 in loan forgiveness over five years for a family physician working in an under-served rural or remote community.

For more information on eligibility requirements, or to apply, go to Canada Student Loan forgiveness for family doctors and nurses.