Higher education comes with a steep price tag, which most students can’t afford right off the bat. So, they take out loans to get their degrees, then end up saddled with thousands of dollars in debt after graduation.
Burdensome student debt is an all-too-common problem in Canada. Over 20% of Bachelor’s degree holders graduate from the chosen programs owing more than $25,000 in debt.
The problem is especially dire in Ontario, where the cost of living is the highest in Canada. And to make matters worse, the Ontario government scrapped the-six month grace period on OSAP (Ontario Student Assistance Program) loans in 2019! As a result, if you have an OSAP loan, interest will begin piling up immediately after you graduate.
Luckily, there are plenty of ways to pay off your student loans in Ontario. And, if you’re disciplined, you can achieve this goal sooner rather than later.
If you’d like nothing more than to erase your student loan debt, it’s time to create an action plan to pay them off quickly. To get you started, we’ve assembled a list of handy tips you can use to get on the right track. In no time, you’ll be able to say goodbye to your student loans forever!
If your debts are giving you trouble and you need advice, book a consultation with one of the Licensed Insolvency trustees at David Sklar & Associates.
First things first: find out your payment responsibilities
To create a realistic and effective loan repayment strategy, you first need to know where you stand regarding your student debt. That way, you can create a sensible repayment strategy for your budget.
Before you graduate, you should research your repayment responsibilities. Here are just some of the things to take note of:
- What types of loans do you have (Canada Student Loan, OSAP loan, student line of credit from a bank, etc.)?
- What is the interest rate?
- What are the minimum payments required?
- How often are your payments due?
- Do your loans offer a grace period?
- Can you make interest-only payments for a brief period?
- Are you allowed to adjust your payment schedule? If so, what are your options?
By understanding the terms of each loan, you’ll have the knowledge you need to create an effective repayment plan.
Tips for paying off your student loans fast
Now that you have a solid understanding of where you stand regarding your student loan debt, you can map out a strategy for paying it off. Here are some ideas to consider:
1. Don’t wait until your grace period ends
Regardless of the type of student loan you have, you should start paying it off as soon as possible. You don’t need to wait until graduation – take steps to whittle down your balance while still in school. Resist the urge to take action only after your six-month grace period expires.
The benefit of making payments before you graduate is that federal student loans don’t accrue interest while in school. As a result, each payment you make will go directly toward the principal. Once you complete your educational program, you’ll have a much smaller balance to pay down. Plus, with a smaller principal, you’ll incur fewer interest charges once you graduate and your six-month grace period ends.
The same concept applies to private student loans, though their repayment schedules differ. For example, with TD’s Student Line of Credit, you make interest-only payments during school and 24 months following graduation. While it may be tempting to stick to interest-only payments for as long as possible, you’ll reap more financial rewards by chipping away at the principal early on.
Don’t sit around and wait for your repayment period to begin. 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. Don’t borrow more than you need
You should notify your loan provider if you want to switch from being a full-time student to a part-time student. The reason is that your full-time loan will transfer to your part-time schedule. But since your course load will be smaller, you’ll likely need less funding to get through the academic year.
3. Create a payment plan that you can afford
Tally up your household expenses to see how much you can dedicate each month to your student loans. It’s important to make consistent payments if your goal is to pay off your student debt quickly. But you’ll face financial setbacks in no time if your other bills quickly devour your income.
Use the loan repayment calculator to experiment with different repayment plans to find out what’s realistic and achievable for you. This calculator will provide you with the monthly payment amount and interest you can expect to pay.
4. Stick with a student budget
When you move out of your dorm room, it’s prudent to stick with your old student budget for a while. In other words, live frugally rather than lavishly.
Of course, this doesn’t mean you should live off ramen noodle packets and instant coffee. But it does mean that you can make practical compromises that can help save you money and pay off your debt faster.
Here are some ideas to keep your expenses low:
- Instead of living solo in a high-end apartment or townhouse, choose a cheaper alternative and live with roommates.
- Instead of purchasing brand-new furniture when you move, keep your old furniture or buy gently used pieces.
- Buy a used vehicle rather than a new vehicle. You can also find other ways to get around the city, like riding a bicycle, riding the subway, taking buses or walking.
- Rather than going out to restaurants or ordering takeout, make home-cooked meals.
The key to keeping your costs low is to create and follow a strict budget. If you need some guidance on how to budget money properly, click the link for a quick introduction.
5. Never miss a payment
Make it a habit to meet your payment deadline each month without fail. Consistent on-time payments are crucial if your goal is to pay off your student loans as quickly as possible.
If you miss your due date often, more interest charges will collect on your balance. And you risk damaging your credit standing, as your payment history significantly impacts your credit score.
The easiest way to ensure you never miss a payment is to set up pre-authorized monthly payments with your loan provider.
6. Pay more than the minimum
Paying the minimum amount required each month will keep your student loans in good standing. But it won’t get you any closer to clearing your balance. This strategy can even prolong the time it takes to pay off your loan, as is the case with minimum payments on credit cards.
For this reason, it’s worth increasing your payment size to speed up the repayment process. Your lender will apply the portion that exceeds the minimum amount directly toward your principal so long as you’re current with your account.
7. Apply financial windfalls toward your loan balance
Save as much money as you can and direct it toward your debt. Anytime you come across 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.
Remember that your lender will allocate your lump sum payments to interest charges first and then to your principal. As a result, the best time to apply financial windfalls to your debt is while you’re still in school or during your six-month grace period. The faster you pay down your principal, the lower your total interest costs will be.
8. Increase your payment frequency
If boosting your monthly payment amount isn’t feasible, consider increasing your payment frequency.
For example, instead of making monthly payments switch to a bi-weekly payment schedule. By doing so, you’ll make the equivalent of one extra monthly payment each year. Homeowners routinely use this payment method to pay off their mortgages sooner.
You can easily adjust your payment frequency for Canada Student Loans by logging into your NSLSC account.
9. Take advantage of tax breaks
When you file your tax return, you can claim the interest from your government student loans as a non-refundable tax credit. By doing so, you’ll pay less income tax.
You can carry the interest forward for up to five years if you don’t owe tax in a particular year due to a low income.
10. Pay off loans with the highest interest rate first
If you have multiple student loans, prioritize paying off the one that charges the highest interest rate. Then, focus on the one with the next-highest interest rate, and so on. Financial planning experts refer to this debt payments strategy as the avalanche method.
By focusing on paying off the most expensive loan first, you’ll save money on interest charges, which would otherwise make your balance grow. As a result, you’ll be debt free sooner, much sooner. A James Madison University study found this to be the case – the debt avalanche works remarkably well in saving borrowers money.
11. Take up a side hustle
If your student loan debts are enormous, trimming the fat from your budget and embracing a frugal lifestyle may not be enough to pay them off quickly. In that case, consider creative brainstorming some ways to boost your income through a side hustle.
Today, it’s easier than ever to find part-time gigs to earn a few extra bucks. You can try things like tutoring, dog walking, being an Uber driver, or even selling your old belongings through a garage sale.
And with the advent of online technology and remote work, it’s easier than ever to find a job you can do entirely from home. You’ll have tremendous flexibility and autonomy, and you won’t need to waste money on fuel for a commute.
Consider selling a service, like graphic design, writing, and coding, on sites like Fiverr and Upwork.
12. Consider student loan debt consolidation – but only if it makes sense
If you have good credit and earn a steady income, consider consolidating your student loan debt. The idea behind debt consolidation is to combine your existing debts into a single payment, preferably at a lower interest rate. That way, more of your payments will go toward the principal, allowing you to pay off your debts faster.
However, combining your existing student loans under a new loan is rarely wise. In fact, following this strategy can cost you more in the long run.
For example, many debt consolidation loans come with steep interest rates, especially for those with bad credit.
Alternatively, most student loans already offer affordable rates, whether issued by governments or banks. From this perspective, there’s little to gain by consolidating your student debts.
13. Get help if you need it
If you’re overwhelmed by your student loans, there’s no shame in asking for help. Whatever the reason behind your financial problems, there are government-sponsored debt relief programs that can assist you.
For example, the NSLSC allows you to adjust your payment terms, temporarily reduce your payment amount, or pay only the interest on your loan for a brief period.
Also, repayment assistance programs are available for Canada Student Loans and OSAP loans. The benefit of enrolling in these programs is that the government will pay the interest charges on your account, as well as a portion of the principal.
Here are some helpful links to explore:
- OSAP’s Repayment Assistance Plan
- Canada’s Repayment Assistance Plan
- National Student Loans Service Centre
14. Stay motivated
Making savvy financial decisions is necessary to pay off your student loans quickly. However, it also requires a fair amount of motivation.
Paying off your student loan debt can be a slow and painful process. It can be intimidating to log into your account and see the colossal balance you need to whittle down to zero. But it won’t take forever. You’ll eventually reach your goal if you’re diligent, persistent, and patient.
OSAP bases its entire repayment schedule on the average time it takes to repay its loans: nine and a half years. So, there’s no need to feel like a failure if you can’t tackle your loan in one or two years.
Whenever you hit a milestone with your student loan payments, reward yourself. It can be as simple as treating yourself to a movie theatre or spa trip. You want to treat your debt relief as an accomplishment, not a chore. That way, you’ll be motivated and enthusiastic about sticking with your repayment plan until the very end.
What Can You Do About Student Loan Debt You Can’t Pay?
There’s no doubt that many Canadians are struggling with their student loans. Student debt remains a significant factor in why Millennials consider filing for bankruptcy. And they’ll soon be joined by younger Generation Z graduates who face challenges finding employment in their chosen field.
Many individuals who struggle to repay their student debts ask us often about filing for bankruptcy or getting a consumer to eliminate them. And while these are valid options, there are special rules around bankruptcy or consumer proposals and student loans that can prevent you from being discharged from that debt right away.
Government-guaranteed student loans are subject to the seven-year rule. You can only discharge them through bankruptcy or a consumer proposal seven years after you were last a student, either part-time or full-time.
One exception to this rule is the hardship provision, which allows debtors to have student loan debts discharged after only five years.
However, the seven-year rule doesn’t mean that bankruptcy or a consumer proposal won’t help. Because of the debt relief options offered by the Government of Canada and OSAP, student debt usually isn’t the sole cause of financial insolvency. It’s getting into other, high-interest types of debt or becoming so overburdened that it’s a struggle to pay all your bills on time.
Insolvency is a way of bringing your debt under control. You pay back what your financial situation reasonably allows by selling off assets or agreeing to a monthly repayment plan. At the same time, the rest of the debt is eliminated, so you no longer have to pay it back. With the help of Licensed Insolvency Trustees in Canada, you can learn more about these options and whether they are best for your financial situation.Contact David Sklar
For some borrowers, sound budgeting and government financial aid through the Repayment Assistance Plan is enough to help them deal with their student loan debts. However, if you need more financial relief, book an appointment with David Sklar & Associates to learn about your options for getting rid of your debts for good.
Photo by Buro Millennial