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Student loan repayment options: A guide to finding the best one for you

While it’s important to understand which student loans are your best bet for covering your tuition, it’s equally important to understand how to pay them back.

14 October 2022Tassie Milne 4 min read
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Photo by Element5 Digital on Unsplash

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In Canada, more than 1.7 million students rely on financial aid to get through their post-secondary education. Through government loans, student lines of credit, personal loans, and even government grants, Canadian students have a number of avenues to help them pay for their tuition, books, and other expenses. But, like all loans—this comes at a cost. On average, students have almost $27,000 in debt by the time they graduate.

So, if you’re one of these 1.7 million Canadians, while it’s important to understand what loans are your best bet for covering your school costs, it’s equally—if not more—important to understand how to pay them back.

While the thought of owing money can feel overwhelming, finding the right plan to ensure you can pay it off will be a huge relief when it comes to your student loans.

Prioritizing your debt doesn’t have to be scary, in fact, through careful budgeting, monthly payments, or even looking into loan forgiveness programs, you can easily navigate your way into debt-free living.

As a note, it’s important to stay on top of payments, regardless of the plan you choose—as paying off your debts is a huge factor in what positively or negatively affects your credit score.

Not sure where to start? Here are six ways to do just that.

1. Budget, budget, budget

The best way to tackle debt is to set a budget to keep your spending habits and payment plans on track. Life after graduation is expensive. Not only will you now have to face juggling a career along with more responsibilities, but you also have to figure out how to allocate your earnings to savings and loans.

While it may be hard at first, if you opt to live frugally just for a short while, you are set to reap the rewards. In some cases, that might mean living in a smaller space as a stepping stone to your dream home, having a roommate for a little longer, or finding a secondary or third stream of income. In other cases, it may mean still choosing to live at home until you’ve paid off your loans or creating a spreadsheet to track any and every purchase and repayment. In areas where budgeting is the focus, planning is key. It’s not easy—but it will pay off in the end, pun intended.

2. Pay it back on a monthly basis—and increase your payments when you can

Whether you applied for a government student loan or a student line of credit, it’s important to set up a monthly repayment. Having repayments set up to go from your bank account automatically makes the process seamless and ensures you don’t miss a payment—which is great for your credit scoregreat for your credit score.

Paying off the minimum amount is important, but sometimes that only covers the interest that’s built up. So you might want to consider increasing your monthly payments. By doing so, you can shorten your repayment time, which ultimately helps lower the amount of interest you’ll have to pay.

Just remember, if you can make payments outside of your monthly option—then heavily consider doing just that.

3. Tackle the loan with the highest interest rate first

Often, students rely on both a government student loan as well as a student line of credit through a private bank. So how exactly should you juggle two different debts?

Generally, it may be in your best interest to tackle the loan with the highest interest rate first.

For example, If you graduate with a government student loan with an interest rate of 9% and a student line of credit with an interest rate of 5%, it’s best to tackle the government loan first, then tackle the line of credit. That way, your government loan won’t accrue a higher interest rate over a longer period of time.

4. Apply for a student loan forgiveness program

For some students, the career path you take may actually help offset the student loans you carry. In 2013, the Canadian government started offering student loan forgiveness for students who became family physicians and nurses who decided to work in rural parts of the country. In this situation, it’s important to research the programs offered in your province—as they vary from coast to coast.

5. Look into a Canadian Repayment Assistance plan

Of course, life happens, and sometimes it isn’t easy to juggle debt along with the monthly expenses of day-to-day living. If you find yourself struggling with your student loan payments, it may be beneficial to look into your province’s repayment assistance programs (RAPs). These programs are designed to help you carry the load of your debt until you’re able to get back on your feet.

In Ontario, for example, rather than following the standardized 10-year period that you’re expected to pay off your loans, these programs give you the option to make monthly payments based on how much you earn.

And, through these programs, if even the monthly interest cost is too much to pay, the government will pay it for you. It’s important to note, though, that these programs require income verification and regular re-application to ensure you still qualify.

6. Try student loan debt consolidation

Similar to other credit card debts or loan debts you might experience in your life, there are options to merge all your debts into one account to make it easier to keep track of payments. This is called debt consolidation. One of the best ways to do this, is to take your government student loans and merge it with your bank or private lender. You may be able to negotiate a lower interest rate and an extension on the debt repayment timeline, so you could decrease your monthly payments. l
Taking out a debt consolidation loan is usually only available if you have a steady income. It’s also important to note that most interest rates on government student loans can be tax deductible, whereas it’s not when it comes to private lenders.

This option also eliminates your qualifications for a repayment assistance program.

For a lot of students, financial aid for post-secondary education is their first foray into credit and debt. That’s why, overall, it’s important to find the system that works for you. Stay on top of your loan—set up those automatic payments if needed—and if you need support and want to keep an eye on your credit score, sign up with ClearScore and get yours in minutes, for free.

Setting the right habits now will only help aid you for future expenses and payments that the working world is sure to bring.

Tassie Milne Image

Written by Tassie Milne

General Manager - ClearScore Canada

Tassie heads up ClearScore Canada. She lives in Toronto with her husband and two young boys. In her free time, she can be found at the family lake house or playing ball hockey.