Lana Oconnell
Student loans can be a heavy financial burden, especially when starting a career and working towards financial stability. The average Canadian takes 10 years to pay off student debt, which can amount to tens of thousands of dollars. However, with a strategic approach and a clear goal, it is possible to pay off student loans faster. This involves considering different types of loans, varying interest rates, and repayment strategies, as well as budgeting and lifestyle choices.
| Characteristics | Values |
|---|---|
| Average time to pay off student loans | 10 years |
| Average tuition fees for undergraduate programs in 2022/2023 | $6,834 |
| Average tuition fees for graduate programs in 2022/2023 | $7,437 |
| Non-repayment period | 6 months |
| Interest accumulation during non-repayment period | Varies, but can be up to 21% for student credit cards |
| Strategies to pay off loans faster | Pay off loans with highest interest rates first, make extra payments, take on a side hustle or second job, set up automatic payments |
| Government assistance programs | Repayment Assistance Plan (RAP), Alberta OPD program |
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What You'll Learn
Make extra payments
Making extra payments is the fastest way to pay off your student loans. Here are some strategies to help you do that:
Understand your loans
First, understand the terms of your loans. Both government loans and student lines of credit can be repaid without penalty, meaning you are allowed to pay more than the required minimum each month. Find out how much you owe to each separate source and the interest rates for each. Prioritize paying back your loans in order of the highest interest rate to the lowest. This will minimize the amount of interest you are charged overall.
Take advantage of the non-repayment period
There is a six-month non-repayment period after you finish school. Although you won't be charged interest during this time, it does start accruing immediately after you complete your studies. If you can, it's a good idea to start paying down your loan during this period to reduce the interest payable over the life of the loan.
Lump-sum payments
Consider using any windfall income, such as tax refunds, birthday money or bonuses, to make lump-sum payments towards your loans. This can help you make substantial progress towards becoming debt-free.
Side hustle or second job
Alternatively, you could consider generating extra income with a side hustle or second job to put towards your loan payments.
Budgeting
Build your student debt payments into your budget. Make sure to include all the costs of student life in your budget, including tuition fees, student union fees, administration fees, health insurance, residence and meal plan costs, and other living expenses. You can use a Budget Planner to include student debt payments in your budget.
Automatic payments
You can speak with your financial institution about setting up automatic payments so you don't have to worry about remembering to make payments.
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Focus on high-interest loans
If you have other forms of debt, such as credit card debt, it is advisable to focus on repaying the loans with the highest interest rates first while making the minimum payments for student loans. This strategy will help you reduce your interest payments and the amount of time you spend in debt.
Government loans and student lines of credit can be repaid without penalty, meaning you can pay more than the required minimum each month. You can pay off high-interest loans first by making extra payments whenever you can. For instance, if you receive a birthday cheque, a work bonus, or simply have money left over at the end of the month, you can use that money to pay off more of your loan. However, if you do pay extra one month, you must include a letter to the lender explaining what the money is for so that they do not automatically apply it to your next month's payment.
It is also worth noting that, as of April 1, 2023, the federal government has permanently eliminated the accumulation of interest on Canada Student Loans. However, any interest accrued before that date must still be paid.
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Understand your loan types
Understanding the type of loan you have is crucial to developing a strategy to pay it off. There are several types of student loans in Canada, each with its own unique features and repayment terms. Here is an overview:
Canada Student Loans
This loan is available to both part-time and full-time students to help them receive financial aid for their education. As of April 1, 2023, the Canadian government has eliminated the accumulation of interest on Canada Student Loans. However, interest accrued before this date still needs to be paid. The repayment period for Canada Student Loans is typically set at 114 months (just under 10 years), but it can vary.
Provincial and Territorial Student Loans
These loans are offered by individual provinces and territories to help students pay for college or university. The interest rates and repayment terms for these loans vary depending on the province or territory. It is important to contact your province's or territory's student aid office to understand the specific rules and interest rates applicable to your loan.
Government Loans
Government loans, also known as federal student loans, offer a six-month grace period after graduation or after you stop being a full-time student. During this grace period, interest accumulates, and you are not required to make any payments. After the grace period ends, the government will provide you with a repayment schedule detailing the monthly payments.
Student Line of Credit
A student line of credit is offered by financial institutions and allows students to borrow up to a pre-set limit. The interest rates on a student line of credit are usually based on the prime rate, which can fluctuate. During your time in school and for the first two years after you leave, you typically make interest-only payments. After this period, your line of credit will be converted into a student loan with regular monthly payments.
It is important to understand the specific terms and conditions of your loan, including the interest rates, repayment periods, and any available assistance programs. This knowledge will empower you to make informed decisions and develop a strategic plan to pay off your student loans as quickly as possible.
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Budgeting and saving
Understand Your Loans and Interest Rates:
Firstly, it is crucial to understand the specifics of your loans. Calculate how much you owe to each separate source, including government loans, student lines of credit, and provincial or territorial student loans. Interest rates may vary for each loan, so determine the rates and prioritize paying off the loans with the highest interest first to minimize the overall interest charged.
Take Advantage of Grace Periods:
Government loans typically offer a six-month grace period after graduation or leaving full-time education, during which interest accumulates but is not charged. Utilize this period to make payments and reduce the interest payable on the loan.
Build a Comprehensive Budget:
Create a detailed budget that accounts for all expenses, including tuition fees, student fees, accommodation, meals, transportation, insurance, and other living expenses. Use budgeting tools like the Budget Planner to help you include student debt payments in your budget.
Reduce Living Costs:
Consider sharing accommodation with roommates or family to significantly lower housing costs. Shop at grocery stores with student deals, and opt for shared residence rooms on campus, which are often cheaper than single rooms.
Automate Your Payments:
Set up automatic payments with your financial institution to ensure you never miss a payment. This helps maintain a good credit score, which is essential for future loan opportunities and various aspects of life, such as renting an apartment.
Make Extra Payments:
Whenever possible, use windfalls like tax refunds, birthday money, or bonuses to make additional payments. Generating extra income through side hustles or second jobs can also help accelerate your loan repayment.
Remember, budgeting and saving are key components of a well-structured plan to pay off your student loans quickly and efficiently.
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Explore repayment assistance
If you're struggling to pay off your student loans, you may be able to get help through the Canadian government's Repayment Assistance Plan (RAP). This plan is available to borrowers who are having financial difficulties and are unable to make their payments. Depending on your income, you may qualify for reduced payments or no payments at all. You can apply for RAP as soon as you start to repay your student loans, and you must re-apply every six months to maintain your eligibility.
If you're accepted into the RAP program, the government will revise your payments and pay the interest 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.
To apply for RAP, you can contact the National Student Loan Service Centre (NSLSC). You will need to provide information about your income and family size to determine your eligibility and calculate your new monthly payment amount.
In addition to the federal RAP program, some provinces and territories may offer their own repayment assistance programs. For example, the province of Alberta has its own Repayment Assistance Plan, which is administered by Alberta Student Aid. To find out what assistance may be available to you at the provincial or territorial level, you can contact your province or territory's student aid office.
It's important to note that the RAP program is not the only way to get help with your student loan payments. If you work in a rural or remote area as a family doctor, resident, or nurse, you may also qualify for special repayment assistance.
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Frequently asked questions
Making extra payments towards your student loans is the fastest way to pay them off. Use any windfall income such as tax refunds, birthday money or bonuses to make additional payments on your loan. Alternatively, consider generating extra income with a side hustle or second job.
There is a six-month non-repayment period after you graduate, finish your studies, or stop being a full-time student. Interest, however, does accumulate during this period. After this grace period, the government will send you a repayment schedule detailing how much you need to pay them each month.
Build your student debt payments into your budget and try making more than the minimum payments. You can also speak with your financial institution about setting up automatic payments. When planning your budget and automatic payments, make sure you know when they’re due. If you have more than one loan, card or line of credit, you may have different payment due dates.
