Student debt contributed to almost 18% of Ontario insolvencies filed in 2018, according to an annual bankruptcy study by Toronto-based insolvency trustee firm Hoyes Michalos & Associates. That means nearly one in six of those filing for bankruptcy did so because of student debt — a record.
Canada-wide, roughly 22,000 ex-students filed for insolvency last year in order to get a handle on student debt.
The term “insolvency” can mean either a personal bankruptcy or a consumer proposal, which is an alternative to bankruptcy in which the debtor agrees, via a licensed insolvency trustee, to make a formal debt repayment plan on a portion of what they owe and the lender agrees to forgive the rest.
The Hoyes Michalos study shows that students are graduating with higher levels of debt than ever before. Not only are student debt insolvencies on the rise thanks to factors like rising tuition costs, insolvencies are being filed much sooner than usual for student debt.
“The average age of an insolvent student debtor in 2018 was 34.6 compared to 35.7 in 2011,” the study reads, “after peaking at 36.1 years in 2012.”
Graduates can’t file for insolvency on their student debt until they’ve been out of school for at least seven years, according to the firm. Precarious employment prospects and minimum wage jobs mean graduates have a hard time finding a stable job that allows them to both live and make a sizable dent in their student debt balance.
That said, 86% of people filing insolvency with student loans were actually employed at the time of filing. “It is the quality of their job and income that is at issue,” the study says. The average income in 2018 for an insolvent debtor was $2,430 a month. That’s 4.7% lower than the average income of an insolvent debtor who doesn’t have student loans to service.
In 2018, the average insolvent student debtor owed $46,373 in unsecured debt. (Unsecured debt is debt that isn’t backed by an asset, such as credit card or line of credit debt). But Hoyes Michalos maintains that student debt “is their primary problem. Student loans account for 32% of their total unsecured balances.”
Someone’s government student debt might top out at only $26,300, which was the average debt load in 2010, according to Statistics Canada. But once you add student credit card debt, bank loans, or a student line of credit into the mix — which many students use to supplement government loans — average debt balances upon graduation can look more like $44,200, according to the study.
Student debt repayment is more of an issue for women, the study shows. Sixty one percent of student debtors in 2018 were women. Hoyes Michalos says this is because female graduates have a harder time finding full-time work than men do, and if they do, they are more likely to have to take time off work for maternity leave and child-rearing.