The cost of a university education is very expensive these days but the cost may be even more than people imagine. Often students have a difficult time finding a career that allows them to address their loans when they first start working. But other than the students, the cost of a university education can be felt by other members of the household.
I met with John and Irene (not their real names) in my bankruptcy office in Scarborough at the beginning of the summer. Between them, they had ten credit cards that had reached the maximum credit and the collection people had started to call. They rented their apartment and had a car which was financed and had no other assets.
Increasing Amount of Student Debt
When I asked them how they had gotten so far in debt, they stated that it was because of the cost of a university education for their daughter. They lived in the east end of the city and their daughter, who graduated a year prior, had to commute to downtown Toronto for classes. When she applied for OSAP, the government assistance was not enough to cover the tuition costs, never mind books. Their daughter had applied for a student line of credit at the bank which John and Irene co-signed. This line of credit would cover her school costs and her daily costs, but after a month of school they discovered a problem. The commute time was too long and she would have to find accommodation closer to the school.
John and Irene wanted to help her financially. Over half of their debt was because of helping their daughter.
Falling Behind on Payments
At first, making the payments was tight but they had been paying down the credit cards little by little. Then Irene lost her job and a her new job paid far less.
When they ran out of credit, they came to see me. Because Irene’s job was part-time, they felt they would not be able to keep up with the payments of a consumer proposal.
While they didn’t want to file for bankruptcy, but they felt they had no option. A bankruptcy would deal with their credit card debts but what about their co-signed loan for their daughter? Their daughter was working and was making her payments on the line of credit and it was going down steadily, but she did not have extra funds to help her parents. After explaining that her parents were considering declaring bankruptcy, the bank was willing to remove her parents as co-signers and let her continue as arranged. Her parents were happy that filing for bankruptcy themselves would not have a negative impact on their daughter’s loan.
Moving Forward to Debt-Freedom
Once they knew their daughter’s loan was safe, John and Irene came back with the completed application. We talked about their bankruptcy and what had happened. They were in debt because they had helped their daughter get an education. They were happy she was going to have the type of career they hoped she would when John and Irene immigrated to Canada. However the combination of the excessive costs and a job loss made it impossible for them to repay all the debts. They couldn’t afford a proposal and the phone calls bothered them so much that they were having trouble sleeping. They decided to file bankruptcy.
When they came in for their second counselling session, I hardly recognized them. They were smiling and no longer stressed out. While they were genuinely sorry that they could not repay their debts they were very thankful for their fresh start and the successful life their daughter would have.
If you have debts that have gotten out of control because of education costs, or for any reason, and you don’t know what to do, come and see us at Hoyes Michalos for a free consultation. We would be pleased to help you find the right solution for your problem and give you the fresh start we gave to John and Irene.