Can Student Loan Debt Consolidation Help Bad Credit?

_{By Bromwich+Smith Staff | 657 words | Reading Time: 3 minutes and 17 Seconds | Date: 2022/05/17}

Many graduates find themselves without work or unable to secure high-paying jobs resulting in student loan debt as they find it difficult to pay their monthly loan amounts. This creates a cycle of debt that can be challenging to rectify. 

While the government of Canada is starting to recognize that students are facing a debt crisis by developing numerous tuition-free education programs and lowering tuition costs in some provinces; this does little to support current students and graduates looking to alleviate their debt. 

To understand if student loan debt consolidation can help with bad credit we first need to understand what types of student loans are available in Canada. 

Types of Student Loans

There are three types of student loans in Canada:

1. Federal loans – fixed or variable rate government loans offered through the Canada Student Loan Program (CSLP).
    
2. Provincial loans – specific to each province or territory, with varying interest rates.
    
3. Private student loans or lines of credit – these are obtained through banks or other lenders if the federal and provincial loans aren’t enough to cover tuition; these can have higher interest rates.

In some provinces, federal and provincial loans will be consolidated or integrated automatically upon graduation so that you only make one payment that goes toward paying off both loans. In other provinces, however, they are not consolidated, resulting in you having to repay all loans separately.

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Which student loans are consolidated?

According to CIBC, if you took out both federal and provincial loans, they will automatically consolidate if you live in:

• New Brunswick
• Newfoundland and Labrador
• Ontario
• Saskatchewan

These provinces allow you to apply for both loans with one application, and after graduation, they will consolidate your student loans via the Integrated Student Loans program. 

There are some provinces and territories that only offer one type of loan, either federal or provincial/territorial, so you'll only have one loan to repay regardless. These include:

• Nunavut
• The Northwest Territories
• Quebec
• Yukon

In all remaining provinces, you could apply for both federal and provincial loans with one application, but these student loans will not be consolidated upon graduation. That means you'll have to be sure to repay each loan separately. This is the case if you live in:

• Alberta
• British Columbia
• Manitoba
• Nova Scotia
• Prince Edward Island

Finally, private loans will never be automatically consolidated.

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How Does Student Loan Consolidation and Refinancing Work?

While the terms are often used interchangeably, student loan refinancing and student loan consolidation are different.

• Refinancing is paying off one single loan with a new one that has a lower interest rate or better terms.
   
• A student debt consolidation loan involves combining multiple debts or loans into one new loan set at a lower interest rate or better terms. 

As a graduate you may want to consider either refinancing your school loan or obtaining a student consolidation loan if you have:

• Made on-time school loan payments already, showing potential lenders that your responsible
• A good credit score 
• A stable and well-paying job
• A cosigner with good credit and/or a good job

If you are looking to get a student debt consolidation loan it can be used to pay off other unsecured debts, like credit cards or payday loans. 

Will Student Loan Debt Consolidation Help With Bad Credit? 

Student loan debt consolidation will help you immediately with managing your debt challenges. Overall, the amount of credit available to you will improve as your loan will ideally pay off all your debts. As long as you are consistent with your payments, you will over time, build a positive payment history and improve your credit. 

Student Loan Repayment Assistance

Before you consider student loan consolidation or refinancing, you may want to investigate what debt assistance is available through our government by reviewing the Repayment Assistance Plan. 

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If you are facing overwhelming debt, remember that you are not alone. Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1-855-884-9243, or request a call back at contact us page. We want to see you flourish!