Does your client suffer under student debt?

If your client is a student, struggles with cash flow might be expected, but some students experience greater financial challenges. That’s because student debt is often cited in insolvency.

In fact, almost one in seven insolvencies involve student debt, says a report by Hoyes, Michalos and Associates Inc., which is based on a seven-year review of student debt and bankruptcy statistics.

In 2017, more than 15% of people filing a bankruptcy or consumer proposal carried student debt, up from about 13% in 2011, finds the firm.

“Rising tuition costs are certainly contributing to a financial crisis for graduates,” says Doug Hoyes, licensed insolvency trustee, in a release.

Average yearly tuition cost at a Canadian university is now more than $6,800, reports StatsCan, up 3.3% from the previous academic year. For some programs, such as dentistry, tuition can top $20,000 per year.

Hoyes says the average student debt among those aged 18 to 29 filing insolvency increased by 20% over the past seven years to $13,168 from $10,962 in 2011.

Those of all ages who file insolvency with student-related debt owe an average of $13,877 in student loans, representing 31% of their unsecured debt, says the report.

While debt amounts have increased, the average age of an insolvent student debtor has decreased—to 35.1 years, after peaking at 36.1 years in 2012.

Student debt–driven insolvencies are more likely to be filed by those in their 30s but almost three in 10 are filed by those aged 18 to 29, says the report. (Debtors must be out of school for at least seven years to have their student debt dissolved in bankruptcy.)

Those who successfully pay off their student debt typically take nine to 15 years to do so. More than three-quarters of Canadian graduates under 40 (77%) say they have some regrets about the amount of student debt they took on, finds an Ipsos poll.

Most student debtors cite poor financial management as the number-one cause of their debt problems, says the report.

For more details, read the full report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.