Graduating from a post-secondary program can be an emotional time. You feel proud of all your hard work, sadness from parting ways with friends, and excitement for what’s next.
Fast forward six months, and things become a little less shiny. At this point, many recent grads have taken a job, started their career, and are financially independent for the first time. Next thing you know, you receive notice that your student loan repayment is about to begin, introducing another popular emotion amongst recent grads: financial stress.
According to Statistics Canada, the average cost of tuition for a Canadian university—before the cost of books, travel, and supplies—is $6,834 per year. After tossing their graduation caps, this leaves the average Canadian graduate of a four-year program with around $28,000 in student loan debt. Keep in mind this number doesn’t include consumer debt—like credit cards and lines of credit—which many students acquire during their studies.
Starting your career is challenging enough without a large student debt weighing you down. It can be hard to tell where you stand financially after graduation or how much debt is ‘normal’ for your age. It’s important to know you aren’t alone; nearly half of young Canadians hold an outstanding student loan. If you’re finding it difficult to pay off your student loan debt or aren’t sure what steps to take, check out these student debt management and relief options:
- Tips to manage student loan debt yourself
- Government assistance programs
- Student loan debt forgiveness
Ways to self-manage your student debt
If you’ve entered student loan repayment—which starts six months after graduation—the best thing you can do is create a plan. Your first step is determining how much you owe and to whom. The two types of debt graduates tend to carry are:
- Federal and provincial student loans
- Consumer debt, like credit cards and student lines of credit
After you figure out the total amount you owe (including government loans, credit cards, and lines of credit), rank your debt from highest to lowest priority based on the interest rate of each. Plan to put more money towards the higher interest rate debt, which will likely be your credit cards or student line of credit.
Canadian federal student loans are interest-free as of April 1st, 2023. With 0% interest on federal student loans, the total amount paid back will be significantly lower in the long run, allowing graduates to pay off their loans and get out of student debt much faster It’s important to remember that you repay provincial and federal loans separately, and provincial and private loans will remain at the interest rate set by the lender. To find out how much of your student loan was provided by the federal government, visit the National Student Loans Service Centre (NSLSC) website.
Managing multiple sources of student debt can feel overwhelming, but creating a budget will help you understand how much money you’re bringing in, how much you need to live on, and how much you have to pay down debt. Once you’ve organized your debts, follow these helpful tips to keep your repayment on track:
- Make your payments on time. Missing or making late payments towards your student loan will negatively impact your credit score. It’s important to remember that your credit score will play a major part in applying for future credit, like a mortgage.
- Automate your payments. Setting up direct deposit payments will ensure you stay consistent with your repayment and avoid damaging your credit.
- Update your budget regularly. Your financial situation will likely change over time, so it’s important to regularly review your budget to ensure you’re meeting your financial goals. Updates could be increasing your monthly debt payments as your income increases or finding ways to cut out non-essential expenses.
- Practice “paying yourself first.” Saving any money might seem impossible while paying down student debt but having a cushion of savings for emergency expenses will help you avoid relying on debt in the future.
For more ways to manage your debt, check out these five strategies to pay off debt fast.
Government assistance programs
Support is available from the Government of Canada if you’re struggling financially and cannot pay your government student debt. The Repayment Assistance Plan (RAP) and Repayment Assistance Plan for Borrowers with Disabilities (RAP-D) are available to help Canadians repay their student loans. Depending on your income, you may qualify for reduced payments or make no payments at all. Additionally, several provinces have student loan forgiveness programs where—if you meet certain qualifications—your provincial government may forgive a portion of your student loan, significantly reducing your total amount owed.
The Repayment Assistance Plan (RAP) is a two-stage process that can assist borrowers in repaying their loans over a maximum of 15 years. RAP also pays off any interest owed on your federal student loan that your reduced payments don’t cover and supports paying down the principal loan amount after 60 months of RAP or ten years after finishing school. Eligible Canadians can apply for repayment assistance any time after their repayment period begins.
Learn more about how repayment assistance works, who is eligible, and how to apply.
Student loan debt forgiveness
Many Canadians struggle with student debt, though only some qualify for the Repayment Assistance Plan. The good news is that Canadians can experience student loan debt relief in other ways. Speaking with a Licensed Insolvency Trustee (LIT) is a great place to start. By speaking with an LIT, you’ll better understand all your debt relief options based on your unique situation.
We’ve outlined what happens when you meet with a Licensed Insolvency Trustee, though when it comes to student debt, these factors are the most important:
- If your loan is government or privately funded
- How old your student loan debt is
- When you finished your studies or ended school
Depending on the above circumstances and if your loans are more than seven years old, a consumer proposal could eliminate up to 80% of your debt, including your student loan debt. Your trustee will work with you to understand what you can afford to pay off and determine a reasonable repayment term.
If your student loan debt is less than seven years old, you can still find debt relief with a consumer proposal. Although the proposal can’t include your student debt, your payments, including interest, would be paused, and it will address, negotiate, and reduce your other debts by up to 80%. Once you complete your consumer proposal, your student loan repayment will resume. Having significantly less debt can provide financial relief and make student loan repayment much more manageable. Additionally, a LIT can help you navigate other forms of debt relief, such as contacting your student loan provider to negotiate your repayments, timeframe, and interest rates.
If you’re struggling with student loan debt, speaking with a Licensed Insolvency Trustee is the best place to start. At Grant Thornton, we offer judgment-free, 30-minute consultations to help you find the best path to debt freedom. Book online, or call us today at 1-844-4GT-DEBT to start your journey to a brighter financial future.