Higher education comes with a big price-tag, which most students can’t afford right off the bat. So, they take out loans in order to make it to class and get their degrees, then end up saddled with thousands in debt after graduation. It’s an all-too-common problem.
The problem is that graduates looking for student debt help will meet some roadblocks with consumer proposals and bankruptcy filings. There are specific guidelines for Student Loans. If you don’t meet those guidelines, you can’t use these relief methods.
The good news is that you have options. If you’re having trouble with your debt, you can always book a consultation with one of the licensed insolvency trustees (previously known as professional bankruptcy trustees) at David Sklar & Associates for assistance. We have six locations across the Greater Toronto Area.
If you’re trying to free yourself from the burden of your student loans, consider how you can effectively pay them all off. Follow these financial tips and you can say goodbye to your student loans forever:
Student Debt in Canada
Canada is currently in the midst of a student debt crisis. Over 20% of Bachelor’s degree holders graduate from their programs owing more than $25,000 in debt. Those findings are from 201, so the numbers have likely grown since then. Tuition costs have gone up every single year for the past three decades, and the majority of students are having trouble keeping up.
According to Statistics Canada, undergraduate students currently pay an average of $6,838 for tuition in a single year. In 2017, that average was approximately $6,500 a year. Graduate students pay an average of $7,086 per year. And the following specialty programs come with astronomical tuitions in Canada:
- Pharmacy: $10,746 a year
- Law: $13,332 a year
- Medicine: $14,780 a year
- Dentistry: $23,474 a year
The steady rise in tuition costs isn’t the only thing causing students to take out massive loans. The student debt crisis is aided by precarious employment and stagnant wages — these can barely cover the costs of living in the GTA, let alone the rising costs of higher education.
Decades ago, students could pay off their yearly tuition with the money that they made during a summer job. Now, a student would have to make almost $7000 from seasonal employment. The minimum wage in Ontario is currently $14.00 an hour — this means that students would have to work over 490 hours just to match the price of tuition. If they worked for forty hours a week for three months straight at a minimum wage job and saved every single penny of their paycheques, they would still come up short.
Plus, tuition isn’t the only expense that comes with the university/college experience. Students have to pay for books, dorm rooms/rent, utilities, food, transportation, phone bills and more. When you tally up the costs, it’s easy to see why so many people turn to loans for help.
Student Loan Challenges in Ontario
A steep tuition rate is one thing that makes paying for secondary education difficult. Another challenge is student loan interest. These interest rates make your debt grow long after you’ve received your cap, gown and diploma.
When it comes to federal student loans, applicants are given a six-month grace period after graduating where they won’t have to start their repayment plan. The grace period allows for graduates to adjust from their full-time schooling to find full-time employment.
Previously, federal loans during the grace period were still subjected to accruing interest. Although you had the opportunity to delay your repayment plan, you would dig deeper into debt. Now, graduates are free from collecting interest during the grace period.
Unfortunately, provincial student loans don’t carry the same benefit for applicants. In January 2019, the Ontario Government announced that OSAP (Ontario Student Assistance Program) would undergo some changes in the upcoming year. One of the biggest changes was that the six-month interest-free grace period has ended — the loans will collect interest from the moment that students graduate. Now, students using OSAP will be given no interest-free buffer between their schooling and their job hunt.
Many shared their worries about the changes for OSAP grants and loans on social media. They were upset that they would get less funding and face greater debt than they did the year before. They wondered if they could even afford to stay in their programs. And some admitted that they would be forced to juggle employment with their full course load in order to make ends meet.
How Can You Pay off Your Student Debt?
If you’re nearing your graduation date and you’re staring down thousands of dollars worth of debt, you should follow these tips to pay it off. They will help you tackle the problem as quickly as you can.
1. Don’t Wait
No matter what type of student loan you’ve taken out, you should start paying it off as soon as possible. That means that you don’t have to wait for your six-month grace period to deal with it — you don’t even need to wait until graduation.
The major benefit of making payments before you graduate is that the loans are not yet subjected to interest. So, you will only be taking care of the principal of the loan. And smaller principal means smaller interest charges. By the time you’re finished your program, you’ll have a much smaller mountain of debt to climb.
Don’t sit around and wait for the repayment period to start. If you have any money that you could use to pay down your debt, you should use it. The earlier that you tackle this problem, the better.
2. Double-Check with Your Provider
If you’re thinking of swapping your status from a full-time student to a part-time student, you should notify your loan provider. Your full-time loans could follow you to your part-time schedule. Since your course-load will be smaller, you will likely need less funding to get through the academic year.
3. Find out Your Repayment Responsibilities
Ignorance is not bliss in this scenario. Before your graduation, you should do the research and find out all of the details of your repayment responsibilities. Here are just some of the things that you need to know:
- How much do you owe?
- What is the interest rate?
- When should you make your payments?
- What are the minimum payments?
- Where do you make the payments?
- How often should you pay? Weekly? Bi-weekly? Monthly?
4. Stick with a Student Budget
Even when you move out of the dorm room, you should stick with your old student budget. This doesn’t mean that you should live off of ramen noodle packets and instant coffee. It means that you should make practical compromises that save you money and help you pay off your debt faster:
- Instead of moving into an expensive living space on your own, share a more affordable living space with roommates.
- Instead of getting brand-new furniture when you move, keep your old furniture or buy gently-used pieces.
- Instead of buying a new car, get a used car. You can also find other ways to get around the city, like riding a bicycle, riding the subway, taking buses or walking.
- Instead of going out to restaurants or ordering takeout, make homecooked meals.
Set yourself a strict budget and follow it. If you don’t know how to budget money properly and you need some guidance, click the link to for an easy introduction. You can use our printable budget form to work out your financial goals.
5. Pay Them Every Month
Don’t skip out on the payments. Make the deadlines every single time and try your best not to break that habit. If you’re afraid that the dates will slip your mind, arrange to have the money automatically taken out of your bank account.
6. Do More Than the Minimum
Try to pay more than the minimum amount of the required payment. Payments that are higher than the minimum can contribute directly to your principal—this is as long as your payments and interest charges are up-to-date. You can do this by increasing the number or size of your payments.
7. Save, Save, Save
Save as much money as you can and direct it towards your debt. Anytime you get access to extra funds like cash gifts, tax refunds, wage increases or annual bonuses, put it in your bank account and then send a portion — or all of it — toward your student loans.
8. Stay Motivated
And one of the most important tips that you have to follow is to keep going. It’s going to be an intimidating amount of money to whittle down, but you can do it. The process can be slow and painful, but it won’t be forever. OSAP bases its entire repayment schedule on the average time it takes to completely repay their loans: nine and a half years. So, there’s no need to feel like a failure if you can’t tackle them in a year or two. You will get out of this, eventually.
To keep yourself motivated, set up celebrations for whenever you hit a milestone. It can be as simple as treating yourself to a trip to the movie theatre or the spa. You want to treat your debt relief as an accomplishment, not a chore. That way, you’ll be inspired to stick with your repayment plan until the very end.
9. Take Advantage of Tax Breaks
When you do your taxes, you can claim the interest from your government student loans as a non-refundable tax credit. The decision will reduce the amount of taxes that you owe. Graduates that aren’t bringing in enough income to owe taxes this year can put the credit forward next year. This option is available for five years.
10. Get Help If You Need It
There’s a possibility that you will still be overwhelmed by your student debt. Maybe you’re struggling to find stable employment and you’re not bringing in enough income to settle the repayments. Maybe you’re dealing with other types of unsecured debt and your student loans are taking the backseat to higher interest rates. Whatever the reason, you should know that there are resources that can help you repay your student loans.
Start by trying out Student Loan Repayment Relief plans for provincial and federal loans:
- OSAP’s Repayment Assistance Plan
- Canada’s Repayment Assistance Plan
- National Student Loans Service Centre
These will be your most straightforward option. You may be tempted to try student loan debt consolidation but that move comes with several downsides. Debt consolidation loans often have high-interest rates — student loans don’t. Taking out a consolidation loan in order to pay off the student debt isn’t the best strategy since your debt from the former loan will build up much faster. Your resolution could end up costing you more in the long-run.
Plus, a debt consolidation loan will eliminate the possibility of filing for a tax break.
So, what other options are there? When you’re struggling with insolvency, and you’re looking for a crucial form of debt relief, you have two options: a consumer proposal or personal bankruptcy.
Consumer Proposals and Personal Bankruptcy
A consumer proposal is a legally binding agreement made between a debtor and their unsecured creditors, giving them a lowered amount to pay off over a maximum five-year period.
Personal bankruptcy is the legal declaration of insolvency, followed by the settlement of major assets and the distribution to creditors. It is usually thought of as a last resort. Licensed insolvency trustees will check to see if you’re a more suitable candidate for a consumer proposal before suggesting a bankruptcy filing.
Student loan debt can be included in a bankruptcy filing. Someone can only do this after they have ceased being a student for a minimum of seven years. The seven-year qualification also applies to student loan debt and consumer proposals — along with restrictions for the repayment process.
The Student Loans Program participates in dividends during the proposal. Once the proposal is complete, an applicant will still have to pay the outstanding balance minus the dividends if they ceased being a student less than seven years prior to filing the proposal.
Student Loan Debt Relief with David Sklar
You’re not alone. Many Canadians are struggling with the burden of student loan debt long after graduating from their program. The positive news is that many Canadians have also found a way to relieve themselves of that burden. With our help, you can too.