The principal tax-related issue normally affecting the lenders in debt for equity swap transactions is the treatment of any loss suffered as a result of exchanging debt for shares which are likely to be worth considerably less than the debt’s face value. To maximise tax efficiency, such ‘loss’ should be available as a tax shelter at the time of the transaction. In certain jurisdictions, however, losses arising from such exchanges may not be recognised for tax purposes until the disposal of the shares.

To create a structure that will secure tax relief at the time of the debt for equity swap transaction, the following factors may need to be addressed:

The reorganisation must not be structured such that the company ‘repays’ the outstanding debt and the lenders use the notional proceeds of the repayment to subscribe for the company’s shares. Instead, the transaction needs to be an ‘exchange’ of debt for shares.

If a proportion of the shares allocated to lenders relates to rolled-up interest, a further advance may need to be made to the company to notionally repay the interest, with this new ‘debt’ then being exchanged for shares. The direct exchange of accrued interest for shares is often tax inefficient.

The tax efficiency of the transaction, both in the company’s and lenders’ interests, is a key consideration in structuring debt for equity swap transactions. Often considerable value can be released from the company’s accumulated losses by structuring the transaction effectively.

There are two principal methods of accounting for equity acquired in exchange for debt:

Writing-off, or fully providing against the value of the equity. This is clearly the most prudent approach and is required under the internal regulations of many banks. However, this policy may not always accurately reflect the underlying commercial substance of a debt for equity swap transaction. This is particularly so if the principal objective of a transaction is to restore some value to the company’s equity. The risk is that this accounting approach acts as a disincentive for banks to convert the necessary level of debt into equity, and thereby fail to agree to a robust financial restructuring. There is also a possibility that once fully provided, there would be little incentive for lenders to take a proactive role in maximising the value of their equity holdings.

Valuing the shares at the lower of cost and net realisable value. For this purpose, cost is the face value of debt converted and net realisable value is assumed to be the estimated realisation at the proposed exit date. The reporting accountants’ valuation of the company’s equity is usually used for this purpose. For short-term holdings, say, realisable within one year, the market value (if any) of the shares is likely to be the
appropriate indicator of their realisable value. This is providing the market for the company’s shares is relatively liquid. The risk associated with this approach is that there is pressure to take an optimistic view on realisable value and hence use a debt for equity swap transaction to delay making necessary provisions against problem loans.

The lender’s host country or internal regulations will often restrict the options available for the accounting treatment of shares acquired in distressed clients. It is important, however, to ensure that the accounting method adopted does not distort the substance of the transaction. A swap based on the fundamental financial and business issues will ultimately benefit all the parties involved.

Research options to reduce the total amount repaidon yourstudent loan.
- Ask if your loan holder offers benefits for automatic payments debited directly from your checking or savings account.
- Consider making payments during your grace period (Stafford loan) or post-enrollment deferment period (Grad PLUS loan), which will save you interest expenses over the life of the loan.
- If possible, pay more than the required monthly payment. Any additional amount you pay will reduce your outstanding principal balance, resulting in earlier payoff and lower interest costs over the life of your loan.
- Get organized. Carefully read all of your student loan-related correspondence and create a “my student loan” file to hold statements, notices and other important loan documents.
- Keep a phone log. Take notes when talking to your loan holder, including the date of each conversation, the name of the customer service representative who assisted you and a brief description of the conversation.

A student loan is the first credit management experience for many students and can significantly affect your credit history. To establish and maintain a good credit history, it’s important to take proactive steps to repay your student loan successfully.

Develop a monthly budget. Creating a budget - also known as a spending plan - helps you decide where to spend your money. If you already have a budget, adapt your current plan to include your monthly student loan payment before the grace period (for a Stafford loan) or post-enrollment deferment period (for a Grad PLUS loan) ends. Repaying your student loan is not optional; your loan payments are just as important as any other fixed monthly expense, like rent or car payments.

You must immediately notify your school’s financial aid office if you:
- Reduce your enrollment status to less than half-time.
- Withdraw from school.
- Stop attending classes.
- Fail to re-enroll at the end of a term.
- Change your name, local or permanent address, or e-mail address while enrolled.

You must make on-time, monthly loan payments. You must repay the total amount of your loan, including any interest that accrues, even if you:
- Don’t complete your education.
- Are dissatisfied with your education.
- Don’t find a job in your field.

You must notify your loan holder if you:
- Change your address, telephone number or e-mail address.
- Change your name (for example, maiden name to married name).
- Fail to enroll at least half-time for the loan period certified or at the school that certified your Master Promissory Note.
- Withdraw from school or attend school less than half-time.
- Transfer to another school.
- Graduate.
- Change employers, employment address or employment status.
- Experience any change that affects your ability to repay your student loan.

Repaying your student loan is an important responsibility. To help you manage repayment, this guide provides helpful information about your rights and responsibilities as a borrower and the repayment options available to you. In addition to outlining the repayment process, this guide also provides tips for successful repayment.

Exit Counseling

If you have a Stafford or Grad PLUS loan, federal law requires you to participate in an exit counseling interview when your enrollment status falls below half-time or just before you graduate (whichever comes first). At that time, your school will contact you to schedule your interview and tell you whether you can complete it on campus or online.

During the interview, your rights and responsibilities are explained and you’re asked to update important loan record information such as your address, telephone number, employer and repayment plans.

BorrowerRights

You may prepay your loan at any time or make payment in full without penalty. You may request a deferment or forbearance during your repayment period. Deferments are entitlements, which means they must be granted to eligible borrowers. However, most forbearances are granted at the loan holder’s discretion.

Repaying Your Canada Student Loan You must continue to make interest payments on your Canada Student Loan once you have completed your studies or have stopped being a part-time student, but you are not required to make any payments on the principal until six months after your postsecondary end date.

As a borrower, you have certain responsibilities, and it is important that you understand the terms and conditions of your loan agreement so that you fulfill your obligations.

Make sure to keep your loan in good standing so that your future credit rating is not affected. Canada Student Loans received before August 1, 2000, are repaid to the financial institution holding the loans.

Canada Student Loans received on or after August 1, 2000, are repaid to the Government of Canada through the NSLSC

Defaults

It is your responsibility to ensure your loan is in good standing. Failure to repay your loan as established in your Part-time Loan Agreement will result in your defaulting on your student loan. If you default on your loan, action will be taken to recover the debt, which may include reporting you to a credit agency, recovering monies through your income tax return, referring your loan to a private collection agency, and/or taking
legal action. It is important to note that while you are in default, the interest on your Canada Student Loan will continue to accrue.

Maintaining You Canada Student Loan As a part-time student, you may be eligible to borrow a cumulative amount of $4,000 (principal and interest) over the period of your studies in total Canada Student Loans.

Part-time loans are not subsidized, and you have to make interest payments while you are in school. If your gross family income is below a certain level while you are in school, however, you may qualify for Interest Relief (see Loan Repayment Help).

If you are continuing your part-time studies but not receiving additional Canada Student Loans, you need to ensure that your financial institutions and/or NSLSC are informed of your in-study status. To do this, you will need to pick up a Confirmation of Enrolment form (Schedule 2) from the NSLSC or from your educational institution, have it properly completed, and provide it to your financial institution and/or NSLSC.

If you are receiving a new Canada Student Loan, your Certificate of Eligibility (Schedule 1A) acts as your confirmation of enrolment.

If you qualify for a Canada Student Loan, you (or the school you plan to attend) will receive a letter of assessment, a Certificate of Eligibility (Schedule1A), an instruction sheet, and a loan agreement within four to six weeks of your application.

Complete your loan documents and have your post-secondary institution complete the Confirmation of Enrolment section of your Certificate of Eligibility. (Note: in some cases, enrolment may have already been confirmed electronically — contact the financial assistance office at your post-secondary institution for more information.)

Submit your completed loan documents in person to a designated Canada Post outlet within 30 days of the day your school signed your Certificate of Eligibility.

If you provide a void cheque, your funds will be deposited directly into your bank account within a week of the NSLSC receiving your properly completed loan documents or within a week of the disbursement date
on your Certificate of Eligibility, whichever is later. Allow an additional week to receive your funds if a cheque is being mailed to you.

Important Deadlines

Since final deadlines can vary among provinces and territories, check with your provincial or territorial Student Financial Assistance Office for deadline information.

You can pick up a loan application from your educational institution or your provincial or territorial Student Financial Assistance Office - some provinces and territories offer on-line applications. After you (and your school) have completed and signed all the necessary documents, forward your loan application to your provincial or territorial Student Financial Assistance Office for assessment. To avoid any delays in the assessment of your application or the disbursement of your funds, make sure all required documentation is included with your application. If you have any questions about the loan application, contact your Student Financial Assistance Office.

Your provincial or territorial Student Financial Assistance Office assesses your complete loan application, confirms your eligibility, assesses your financial need, and determines the amount of federal and provincial loans and grants you will receive.

The National Student Loans Service Centre (NSLSC) will look after everything you might need from the Canada Student Loans Program once your loan application has been processed and you have received a loan document.
The NSLSC is divided into two divisions:
1. Public Institutions Division to assist students attending public universities and community colleges; and
2. Private Institutions Division to assist students attending trade schools, private vocational schools or career colleges.