Ibrahim Gardner
Paying off student loans can be intimidating, especially with the average student debt in Canada being over $28,000, and most students taking 10 years to pay it off. However, there are several ways to make the process easier. Firstly, it is important to budget for tuition, student fees, living expenses, and other costs. Additionally, students can benefit from tax deductions, tax credits, and the six-month non-repayment grace period after graduation. During this grace period, interest still accumulates, so it is beneficial to start paying off loans earlier if possible. To make payments easier, one can set up automatic payments and take advantage of the opportunity to pay more than the minimum each month, starting with loans that have the highest interest rates.
| Characteristics | Values |
|---|---|
| Average student debt | $28,000 |
| Average time to pay off loans | 10 years |
| Time until first payment | 6 months |
| Interest accumulation during grace period | Yes |
| Repayment Assistance Plan | Available |
| Loan forgiveness | Available for borrowers with a disability in extreme circumstances |
| Payment methods | Pre-authorized debit, one-time payment |
| Payment options | Pay off high-interest loans first, pay more than the minimum |
| Consequences of missed payments | Debt transferred to Ministry of Finance or collection agency, negative impact on credit score |
| Budgeting tools | Budget Planner, Financial Consumer Agency of Canada |
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What You'll Learn
Understand grace periods and repayment schedules
After graduating, there is a six-month non-repayment period during which you are not required to make any payments on your Canada Student Loan. This grace period is also applicable to government loans, which do not require any payments on the principal amount while you are in school. However, interest does accrue during this time.
Once the grace period ends, you will receive a repayment schedule from the government, outlining the monthly payment amount. This schedule is tailored to your specific loan and financial situation, and you can adjust the repayment details at any time. The repayment term indicates how many months it will take to repay the loan based on the schedule. It's important to prioritize loans with higher interest rates to minimize the overall interest charged.
If you have both a provincial and a federal loan, they must be repaid separately. Federal loans are repaid through the National Student Loan Service Centre (NSLSC), while provincial loans are repaid directly to your province or territory. Each province or territory may have different repayment rules for their student loans.
It's worth noting that you can make additional payments towards your loan without penalty. If you receive a windfall, such as a birthday cheque or a bonus, you can use it to top up your regular payments. However, ensure you include a letter to the lender specifying that the extra payment should not be applied to the next month's instalment.
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Prioritise high-interest loans
As of April 1, 2023, the Government of Canada has eliminated interest on Canada Student Loans and Apprentice Loans. This change will benefit more than 1.2 million post-secondary graduates in Canada each year. However, students will still be responsible for paying any interest that accrued on their loan before this date.
Previously, student loans in Canada had a six-month grace period after graduation before repayment was required. During this time, interest would accumulate. After this grace period, the government would send a repayment schedule detailing the monthly payment amount. The average student debt in Canada is over $28,000, and it usually takes students about ten years to pay off their loans.
If you have multiple student loans, it is essential to prioritize paying back the ones with the highest interest rates first. This strategy minimizes the total amount of interest charged over time. It is also worth noting that you can pay more than the required minimum each month on government loans and student lines of credit without penalty. Thus, if you receive a windfall, such as a birthday cheque or a bonus from work, consider using it to top up your payments on high-interest loans.
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Explore repayment assistance plans
If you are facing financial difficulties and are unable to make your loan payments, the Government of Canada can help you pay towards your loan through the Repayment Assistance Plan (RAP). Depending on your financial situation, you may qualify for reduced payments or no payments for a 6-month period. The amount of assistance you receive will depend on your income, family size, and outstanding loan debt.
You can apply for the RAP as soon as you start to repay your student loans, and you can apply anytime while in repayment. However, you must re-apply every 6 months to maintain your eligibility. If you are approved for the RAP, the government will pay any interest owing on the federal part of your loan that your reduced payment does not cover. After 60 months of RAP or 10 years after you finish school, the government will start to pay down both the principal and any remaining interest.
There are two stages to the RAP. Stage 1 provides help for temporary repayment difficulties. An affordable payment is calculated based on your balance and current financial situation, and the government will pay the interest on your loan. Stage 2 provides long-term help with ongoing repayment difficulties. During this stage, the government will begin to cover both the principal and interest that exceeds your affordable monthly payments.
In addition to the standard RAP, there are a few other specialized repayment assistance plans offered by the Canadian government:
- Repayment Assistance Plan for Borrowers with Disabilities (RAP-D): If you have a permanent disability, you may be eligible for the RAP-D, which offers additional benefits such as further reduced monthly payments or no monthly payments at all.
- Severe Permanent Disability Benefit (SPDB): If you have a permanent disability that limits your ability to work, you may be able to have your student debt cancelled through the SPDB.
- Canada Student Loan Forgiveness for Family Doctors and Nurses: Practicing family doctors and nurses who provide in-service in underserved rural or remote communities within Canada may be eligible for loan forgiveness of up to $60,000 for doctors and $30,000 for nurses.
- Loan Forgiveness for Canadian Forces Reservists: If you are a Canadian Forces reservist on a designated operation, you do not have to make payments on your student loans.
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Set up automatic payments
Setting up automatic payments is a great way to ensure that you never miss a payment on your student loan. Here are some detailed steps to help you set up automatic payments for your student loan in Canada:
Understand your loan details
Firstly, it is important to understand the terms and conditions of your loan. Review the loan agreement to know the repayment start date, repayment amount, and payment frequency. Federal and provincial loans have different repayment processes, so be sure to clarify this with your lender.
Create a budget plan
Before setting up automatic payments, create a budget plan that includes all your sources of income and expenses. This will help you determine how much you can afford to pay towards your student loan each month. You can use a budget planner to help you with this process and ensure that you are making informed financial decisions.
Contact your financial institution
Speak with your financial institution about setting up automatic payments. They will guide you through the process and may have specific requirements or forms that need to be completed. Ensure that you provide them with the correct loan details and payment information.
Provide accurate payment information
When setting up automatic payments, you will need to provide accurate payment information, including the payment amount, payment frequency, and the date on which payments should be made. Ensure that you have sufficient funds in your account to cover the automatic payments.
Monitor your payments regularly
After setting up automatic payments, it is important to monitor your account regularly to ensure that the payments are being made correctly. Check your account statements to verify that the payments are being withdrawn on the scheduled dates and for the correct amounts. This will help you avoid any potential issues or discrepancies.
By following these steps, you can effectively set up automatic payments for your student loan in Canada, ensuring that you stay on track with your repayments and maintain a positive credit score. Remember to review your budget and loan details periodically to make any necessary adjustments to your payment plan.
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Avoid missing payments
Paying off a student loan can be intimidating, and missing payments can have serious consequences. Here are some tips to help you avoid missing payments on your Canada student loan:
Understand your loan terms and create a budget
Know the terms and conditions of your loan, including the interest rates, monthly payment amounts, and repayment schedule. Create a detailed budget that includes all your expenses, such as tuition fees, student fees, living expenses, and other costs of student life. This will help you stay organized and ensure that you have the funds available to make your loan payments on time.
Take advantage of the grace period
Government loans typically offer a six-month grace period after graduation or leaving full-time education before repayment is required. This period allows you to find employment and get financially settled. However, interest may accumulate during this time, so if you can start repaying your loan earlier, it may be beneficial to do so.
Prioritize loans with higher interest rates
Focus on repaying your loans with the highest interest rates first. By paying off these loans more quickly, you can minimize the total amount of interest you will pay over time.
Make extra payments when possible
Both government loans and student lines of credit typically allow you to pay more than the minimum monthly payment without penalty. If you receive a windfall, such as a birthday gift or work bonus, consider using it to make an extra payment towards your loan. Just remember to include a letter to the lender specifying that the extra payment should be applied to the loan principal.
Stay in contact with the NSLSC
If you are having trouble making payments, log in to your National Student Loans Service Centre (NSLSC) account to access tools and resources that can help you manage your loan. You can also contact the NSLSC directly to discuss repayment options and find a plan that works for you. Taking proactive measures will help you avoid falling behind on your payments and maintain a positive credit rating.
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Frequently asked questions
After graduating, you have a six-month non-repayment period. Once this period is over, you will receive a package detailing your payment terms and options. You can pay off your loan through the National Student Loan Service Centre (NSLSC).
Missing payments can affect your credit score and ability to get credit in the future. If you have trouble making payments, contact Student Aid to learn about applying for a Repayment Assistance Plan or adjusting your repayment details.
You can pay more than the required minimum each month. Prioritize paying back your loans in order from the highest to lowest interest rate to minimize the amount of interest charged overall.
