What Students Need to Know About College Loans

According to the Canadian University Survey Consortium and its 2015 annual report, more than 18,000 graduating university students from 36 Canadian universities had an average student loan debt of almost over $27,000.  Ouch!  An education loan is a big headache for young people trying to get their careers started.  I feel for you.  So here is some information that might help, so that you can repay your student loan a little more quickly.

About some basics.  It is time to start repaying your loan when you:

  • Have left school no matter what your status
  • Finished celebrating after graduating
  • Transferred to part-time studies (so, no, you can’t get away with the “I’m still in school argument”)
  • Took time off for 6 months to go find yourself somewhere in Asia

So, for the first half year, you don’t not have to make payments to your Canada Student Loan or your provincial student loan, also referred to as the 6-month non-repayment period.  However, interest does accumulate as you try to convince yourself that these loans will, perhaps, evaporate miraculously.

About your options.  Here’s the menu. You can choose to do one or more of the following things:

  • Start making interest payments right away
  • Pay the six months’ interest as a lump sum before you start making your regular payments
  • Ask loan providers add the interest amount to the loan total after the six month non-repayment period.

And don’t wait for them to contact you.  You should contact them.  It is your responsibility, and if you don’t follow through, loan payments may start to be automatically withdrawn after the 6- month non-repayment period from the bank account your loans were deposited (with direct deposit in tow).

You should create an online NSLSC account (National Student Loans Service Centre) to stay connected and keep your contact info up-to-date.

About making payments.  At some point you will get a notice that education loan repayments will begin. If you don’t receive snail mail from them, contact the loan provider before your 6-month non-repayment period is over.  You want to know this information:

  • how much is left to pay
  • the interest rate that will be applied to your loan
  • the bank account you will use to repay the loan
  • the monthly withdrawal amount from the account
  • the withdrawal date (if it’s auto-withdrawals)
  • how to send monthly payments to the loan provider (if not auto-withdrawal, then cheque, online, or by telephone
  • the length (total term) of you repayment schedule.

Setting up a student loan repayment schedule also gives you the opportunity to get help if you are like most students and, generally, struggling financially as you try to establish yourself after school is done.

About HELP!  I need somebody.  You didn’t have to go to school to know that missing payments will cause you grief.  You don’t want your credit score to suffer.  The federal government can provide repayment assistance options, which may lower your payments or put them on hold until you can afford them.  Enrolment is not automatic so you must apply for this assistance.  The Repayment Assistance Plan (RAP) and the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD) makes it easier for you to manage your student loan debt by reducing your monthly payment.

Check out esdc.gc.ca/en/student_loans/repayment_assistance_plan.page

How to get past this phase in your life faster.  Here are some tactics that can work in your favor.

  • Pay it off as quickly as you can. Got extra money? Use it to pay down the principal amount of your loan.
  • When you start your first job, you may get a car loan, be paying rent and other expenses while paying back your student loan; you can revise the terms of the loan to lower the monthly student repayment amount.
  • Lump sum payments made in the first 6 months are applied directly to the principal
  • When you can increase monthly payment amounts, the amount paid above the minimum monthly payment is applied directly toward the principal amount of the loan decreasing the total loan amount and the total interest you will have to pay.

O Canada! There ARE Government of Canada tax credits for student loans.  This is good news for you.  And these credits can reduce your student loan financial challenges.

  • Get a 15% tax credit on the interest you pay on your government student loans each year. This credit applies to interest payments you make on both your federal and provincial or territorial student loans.  And HOW do you get a tax credit?  The appropriate documents will be sent to you before you file your taxes.  But take note:  the credit does not apply to interest payments you may make on loans held with a private lender (such as a student line of credit with a bank).
  • You can claim a full-time education credit in the amount of $400 for each whole or part month in the year in which you were enrolled in a qualifying program at a designated school.
  • You can also claim a part-time education credit n the amount of $120 for each whole or part month in the year in which you were enrolled in a qualifying program at a designated school.
  • Get a non-refundable textbook tax credit of $65 for each month you were enrolled in a course that entitles you to a full-time education tax credit.
  • Get a full tax exemption for all post-secondary scholarships and bursaries. You will still receive a T4A tax slip. However, if the scholarship or bursary relates to enrolment in a program that entitles you to the Education Tax Credit, the amount does NOT have to reported in your income tax return.

Maybe you’re still confused.  Don’t worry.  There’s plenty of information available.  You can visit https://www.canada.ca/en/employment-social-development/services/student-financial-aid/student-loan/student-loans/pay-back/manage-debt.html.  But I would also encourage you to talk to your institution.  They have to know these things.  You don’t get if you don’t ask.

For younger students coming up the ranks, take heart in the fact that post-secondary education is becoming a better option more and more as constraints are being removed so that lower income individuals can afford to pursue their career dreams.