Struggling with student debt? Here’s how to pay off student loans faster

Pursuing post-secondary education can help you land your dream job. But obtaining a degree or certificate can comes at a cost, in the form of student loans. In fact, the average Canadian takes 10 years to?pay off student debt.

According to?Statistics Canada, Canadian students enrolled in an undergraduate program shelled out on average $6,693 in tuition costs for the 2021/2022 academic year. If you live away from home, you might need loans to cover housing costs, too. Over a typical four-year program, that can mean shouldering tens of thousands of dollars of debt.

So, how can you pay off your student loan debt? We break down the types of student loans,?repayment strategies, and how you can balance this obligation with other priorities.

How to pay off your student loans

Here are several key factors to consider when making a plan to pay off your student debt.

1. Tally up your student loans

You may have one type of student loan or a mix of a few. Here’s a breakdown of the various options available to Canadian students.?

• Canada Student Loans:?This type of loan helps part-time and full-time students to receive financial aid.
• Provincial and territorial student loans:?This financial aid program helps you pay for college and university.
• Student line of credit:?A financial institution can offer a student line of credits (allowing you to borrow money over and over again up to a pre-set limit), which can help pay for tuition, books and living expenses.

Figure out how much you owe to each separate source. Once you’ve gathered your sources, now you’re ready for step two.

2.?Find out the interest rate charges for each loan

If you have a mix of loans, the interest rates for each will vary. In response to the financial challenges of the pandemic, the?Government of Canada announced?that it has suspended the accumulation of interest on Canada Student Loans and Canada Apprentice Loans until March 31, 2023. However, you will still need to make monthly payments.?

For Canada Student Loans, the default is set to a?floating interest rate, which is equal to the prime rate (currently at 3.70%). If you wish, you can switch to a fixed interest rate, which is equal to the prime rate, plus 2%. Know though, if you make this change, you cannot go back to a floating rate. You can make this change by logging into your?National Student Loans Services Canada?(NSLSC) account.?

The interest rates can also vary for provincial or territorial student loans. Reach out to your?student aid office?to find out more information on how much interest you may owe.?

If you use a student line of credit, one of the surprising benefits is that the interest rates?tend to be lower?compared to government student loans. Currently, each financial institution is charging their own variable prime rate, so it will vary based on your lender.?

3. Create a payment schedule

In my opinion, it’s wise to pay down your Canada Student Loan during the?non-repayment period, which is the first six months after finishing up your studies. Although you won’t be charged interest, it does accrue immediately after you complete your studies. This will help to reduce the interest payable on the loan. For a provincial student loan, each province and territory has its own set of rules. You can find more details on the?Government of Canada website.

You can determine what the monthly payments will be using the?Loan Repayment Estimator?tool. By entering the total amount of your student loan debt, selecting the type of interest (fixed or floating), along with the number of months you estimate you will need to pay off the loan, the calculator gives you the amounts for monthly payments and payable interest.?

For example, say you have $25,000 in student loan debt when you graduate, your loan has a 3.2% interest rate and a 10-year repayment period. With option one, you wait to begin making payments six months after finishing school. With option two, on the other hand, if you start making your repayments immediately after you finish school.

With option one, you will pay a $4,246.01 in total interest. With option two, you will pay $3,793.50, reducing the interest amount $452.51. See the chart below for a further breakdown.

For an even smarter way, you could make larger lump sum payments, and this will further reduce your principal amount and thereby shrink your total interest payments.?

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