Two words that can strike fear in almost any person who has spent hours in a lecture hall, basically lived in a library cubby desk, or drank 8 cups of coffee trying to cram for an exam.
In today’s society, going to school can feel almost necessary for most Canadians. We’re not saying post-secondary is everyone’s cup of tea that will lead them to success, but it seems to be a popular option.
Going to post-secondary is one thing, but paying for school is another.
Thankfully, in Canada, there’s a 6 month grace period that you can take advantage of. This means you won’t have to start paying back your loans during that time, but unfortunately, the interest starts accruing the second you walk across the stage and get your diploma.
But there’s something that not everyone knows about…
Any interest paid on your student loan qualifies for a 15% tax credit each year. This applies to interest payments you make on both your federal and your provincial or territorial loans.
How much student debt is in Canada?
According to statistics from the Canada Student Loans Program, in the 2014 – 2015 fiscal year, the government gave out $2.7 billion in student loans to 489,000 full time students, and another $20.9 million to 12,000 part time students.
Here’s a breakdown of what the average student owes:
- university students typically owe $16,727,
- college students typically owe $10,172, and
- doctoral students typically owe $29,000.
That’s a lot of coin.
And did we mention that tuition fees increased by over 3% for undergraduate programs in the 2017 – 2018 academic years? It doesn’t look like it’s getting any better…
Related: Best Student Credit Cards In Canada
6 tips for how to pay off student loans faster
Because you’ve gotta do it sometime, here are a few tips to paying off your student debt.
Keep in mind that while these tips work for some people, they don’t all work for everyone. Find one that’s an option for you and your personal finance habits, or figure out if you need to make some changes in order to put you closer to your financial goals.
1. Take a hard look at your finances, including your spending
I know. Easier said than done. But the truth about budgeting?
The easiest way to do this is to look at (or even print out) your bank account transactions and break them into categories. Depending on what your lifestyle is like, your categories might include:
- bills, subscriptions, and housing,
- miscellaneous, and finally,
- student loan monthly payment amount.
The amounts in these categories can surprise you, which can be a good or bad thing.
Ask yourself how much you really need for these things. Are there improvements that can be made? Are you overspending on a certain category when there are definitely alternatives?
Set up a budget that leaves room for emergency spending and prepare for the unexpected, follow it as strictly as possible, and you’re one step closer to being able to make your monthly student loan payments.
And make sure if you’re using a credit card, you’re using one that’s working for you. Here’s the best no fee, flexible, cash back credit card in Canada, so you can put that extra cash towards becoming a personal finance boss.
2. Use a loans calculator and see how long it’s going to take you to pay off
It pays to know what you owe.
Luckily, the Government of Canada has a loan repayment estimator that will help you figure out how much you’ll need to pay back each month, depending on factors like how long you want to take to pay off your debt, if you’d like to take advantage of the non-repayment period, and more.
It can give you a good idea of what you should expect for a bill at the end of each month.
3. Pay as often as you can
It’s understandable to make paying back your student loan debt your first priority. After all, the numbers can seem pretty big, and the task of paying it off daunting.
But student loan debt is relatively cheap debt. This is because they usually have some pretty cheap interest rates, which are currently a fixed rate of 8.95% or a variable rate of 6.45%.
We won’t go too into the argument of whether it’s good or bad debt, but if it’s helped you get closer to a good job that you’ll love more than the options you had before, then it can’t be all that bad.
Because student loan interest is cheap, you might want to focus on getting further ahead in other areas of your life.
Build up an emergency fund, a savings account, maybe even try going for homeownership.
It’s always a bad idea to pay the least amount you can on a high interest credit card, but not necessarily on your student loans. It’s okay to only make the minimum payments.
If you’re not completely sold on paying it low and slow, try making another payment with any extra cash you have at the end of the month. Any additional payments will be deducted from the principal, not just the interest, so you’re paying your loan directly at that point.
This way, you’re paying as often as you can and reducing that scary total.
4. Exceed your minimum payments
A lot like paying as often as you can, you can pay more than you need to.
Confused? Here’s the scoop.
You can tack on extra to the amount you’re paying at the end of the month. This way, it’s not an extra payment, just a larger one.
Again, anything over your agreed-upon payment will be deducted from your principal.
5. Call National Student Loans Center and see what your payment options are
If you’re struggling to make payments, or just simply need some answers, it’s never a bad idea to discuss your options with the people who know the most.
Here’s the toll-free telephone number:
- 1 888 815-4514 (within North America)
- 800 2 225-2501 (outside North America)
And if you’d prefer to send an email, here’s a link to their contact form.
6. Consider student loan debt consolidation ‒ but proceed with caution
Debt reconsolidation should often be looked at as a final option.
Honestly, because the Canada Student Loans interest rate is so reasonable, and you’re able to extend your loan to what seems like forever, it probably shouldn’t be an option.
But if you’re that committed to not paying “the man,” you can try debt consolidation through a third party company or taking out a line of credit. Just remember that the interest rate will more than likely be higher, and the terms of debt consolidation can be tricky.
The reminder that is always worth repeating over and over again:
Read the fine print.
Common student loan questions
You’ve got questions, and we’ve got answers.
Interested in something not on this list? Contact the National Student Loans Center and they’ll be happy to help. I’ve had good experiences with them in the past.
Just keep in mind that September can be a hard time to reach them, since they’re busy dealing with disbursements and current students trying to get their loans.
Should I take out a line of credit to pay off my student loans?
Like we said above, probably not.
But if you honestly feel like the terms and interest rate are better suited for you, no one knows you better than you do. Just keep in mind that you can’t take it back once you’ve decided to go that route.
How long before my interest starts kicking in?
Interest starts kicking in as soon as you graduate. You won’t be paying it for 6 months if you’ve decided to take advantage of the grace period, but it’ll still be there collecting.
How long do I have to pay off my student loans?
That one’s up to you.
The loan repayment estimator we mentioned maxes out at 15 years, but many people take longer than that – you just need to contact the NSLC and request a revision of terms.
Remember though that the longer you take, the more interest you’re paying.
How much student loan debt is a lot?
That’s relative to you and your situation.
If you’re studying to be a doctor, the tuition fees are out of this world, but your salary is a lot higher if you end up getting a job after you’re done school.
If you choose to take a course that isn’t necessarily related to the career path you aspire to, then the money paid towards your tuition is a lot because it may not be worth it in terms of earning a better salary.
Where do I go if I need help?
It’s never a bad idea to ask for help. The Government of Canada website has great information on your student loans and repayment options.
Wondering how to make a lump-sum payment?
Wondering how to update your payment options?
Wondering about repayment assistance?
Wondering about options when you can’t repay your loan?
We want to hear from you
Have you paid off you student debt?
Any tips we didn’t mention?
Let us know in the comments below.