Take advantage of the interest-free grace period

As we mentioned above, new graduates don’t have to make payments on their loans during the first six months after graduation, and they aren’t charged interest during that time either. That said, you can still make payments on your loan during the grace period. Making payments at 0% interest has a significant impact on your loan because every dollar you put toward your debt will pay off the loan principal instead of interest. If you can start making loan repayments right away, go for it!

Tackle non-government student loan debt first

Canada student loans are a relatively low-cost form of debt. If you have other types of student loan debt, like a line of credit or a personal loan, those debts will most likely have higher interest rates. That means it is best to focus your debt repayment efforts there first to minimize the total interest paid.

Apply for student loan forgiveness

Some provinces offer student loan forgiveness programs, where they will forgive a certain amount of your debt. These programs are usually centred around specific professions (for example, nurses) and require you to work in certain conditions (like being in a rural area) to qualify. These programs are usually provincially run, so try searching for “your province + student loan forgiveness” to find a program available locally.

Consider debt repayment assistance

If you can’t afford to pay back your student loan, apply for repayment assistance. Repayment assistance will recalculate your minimum debt payment as a percentage of your income, or if you don’t earn enough, payments may be suspended altogether. You could also consider getting in touch with a non-profit credit counselling company like Consolidated Credit to discuss how to manage your debt best, but be sure to do your due diligence.

Apply for a debt consolidation loan

While Canada Student Loans have very reasonable interest rates, not all Canadian students qualify. If you’ve taken out bank student loans, you may find your loan interest rates relatively high. If that’s the case, a debt consolidation loan could help absorb all of your student debts into one loan, with a single, lower interest rate.

For a one-stop shop, start with a reputable online loan search platform, like Loans Canada With a single search, you’ll be able to compare rates offered by the country’s top lenders. Interest rates can be lower than average, but it depends on your credit history and income. Whatever you do, make sure to compare interest rates rigorously. Make sure you really are paying a lower interest rate and therefore saving money.

What are the Canada Student Loan repayment rules?

Canada Student Loan program is in an unexpected limbo as the federal government temporarily suspended payments and interest charges during COVID-19. That suspension expired on September 30, so your loan will be due for repayment after that date.

But new graduates typically have an interest-free grace period of six months after they graduate. After this grace period ends, you begin making monthly payments on your loan. Most federal student loans are amortized over a 10-year term, or 9.5 years if you take your grace period into account.

There are two types of interest rates you can choose to repay your loan:

  • Fixed rate: The interest rate will stay the same throughout your loan term. The fixed rate for Canadian student loans is the prime rate, plus 2%.
  • Variable rate: Fluctuates and follows the prime rate. The prime rate is currently 2.45%, so choosing a variable rate will lower the overall interest you pay, but the downside is being more prone to fluctuations.

The good news: you can make extra payments on your student loans without penalty and shorten your overall loan term if you choose.

Last words

How to pay off student loans goes beyond merely living on a budget and putting birthday money towards your debt. There are several strategies outlined above that can dramatically reduce the amount of time and money you spend while in debt. Once you’re out of debt, make sure to put that extra cash to good use by saving for your future or your goals.

Jordann Brown is a freelance personal finance writer whose areas of expertise include debt management, homeownership and budgeting. She is based in Halifax and has written for publications including The Globe and Mail, Toronto Star, and CBC.


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