You have taken out a student loan to assist you while you go to school. Keep in mind that whether you complete school, or drop out, you still have to pay back that loan, and not doing so can have considerable consequences.
In my early 20’s, I had taken a part-time job working for Equifax who at that time collected student loans. I recall a conversation with a girl in Kanata, Ontario who owed $40,000 on her loan and was paying $10/month.
Rather than yelling and her and demanding payment, I asked her what she intended on doing with the loan. She was quite sincere when she said that she was making the $10/month payments to appease the collection agency and that she felt she didn’t actually owe the loan.
I felt bad.
When I asked her why she didn’t owe it, she said simply because she didn’t go to school, thus didn’t need the loan for school.
“So, what did you do with the money you got from the government?”, I asked.
“Oh, I bought a car, a huge TV, and some new clothes… But I didn’t use it for school.”
“Oh”, was all I could think of… “but you took out a loan, and still need to pay the money back.” I spent the next 15-20 minutes answering questions and providing information.
2 days later she filed for bankruptcy.
She should have used that money and gone to school!
Regardless, there is a lot of information regarding student loans and how to get out of them. Rather than looking at it solely from that way, let’s look at them right from the begging through to the completion of the loan.
Beginning with, once you get a loan:
Make a plan to repay your student debt
1. Who you need to repay
You may have loans or lines of credit that you need to repay to the government and/or your financial institution. In some provinces and territories, Canada Student Loans are issued separately by the federal and provincial or territorial governments, which means, you could have more than one loan to pay back.
Verify your contracts to determine where your debt comes from and where you need to repay it.
2. How much you need to repay
Verify your loan or line of credit contract to figure out the following:
- Total amount owing
- Interest rate applied to the debt
- How to repay the debt
- How much to pay
- How long it will take to pay back the debt
Contact the organization that provided your student loan or line of credit if you don’t have the information listed above.
3. When you need to start paying
Different repayment rules may apply depending on your type of student loan.
Canada Student Loans (CSL)
CSL’s have a 6-month non-repayment period after graduation and during that period, payments do not have to be made and interest will not be charged on the loan. This period begins after one of the following;
- Finish your final school term
- Transfer from full-time to part-time studies
- Leave school or
- Take time off school
Before the 6-month period ends, you’ll have to log in to your National Student Loan Service Centre account to find out your repayment schedule.
Note: You can and should still make payments at any time after receiving your loan. You don’t have to wait until after the 6-month period ends to start repaying. Paying it early and often reduces the amount of principle owing which reduces the amount of interest charged.
Click here to: Log in to your National Student Loan Service Centre account
Provincial student loans
The repayment rules of provincial student loans vary depending on the province or territory where you applied for your loan.
Student Lines of Credit (SLOC)
If you have a SLOC through your financial institution, you’ll have to pay the interest on the amount of money you borrow while you’re still in school.
After graduation, many financial institutions provide a 4 to 12-month grace period during which only interest payments are required to be made. This benefits the institution because they’re getting your interest payments and you are not reducing the amount of principle owing. Once the grace period ends, you’re back to paying the debt through a repayment schedule agreed upon with that institution.
Contact your financial institution to get information about paying back your student line of credit.
Having trouble paying
If you need help with repaying your CSL, you may qualify for the Repayment Assistance Plan (RAP).
If you’re having trouble repaying a provincial student loan, contact your student aid office. For repayment assistance with a loan or LOC provided by your financial institution, contact your branch to determine what your options are.
Understand that by making your payments smaller, it will take you longer to pay back your loan. You’ll end up paying more interest on your loan.
How student debt affects your credit score
Student loans and lines of credit form part of your credit history which means if you miss, or are late with, your payments, it can affect your credit score.
Your credit score shows future lenders how risky it can be for them to lend you money. A poor credit score makes it difficult to borrow money from a bank, get a credit card, and can impact your ability to get a job, or rent an apartment.
Understand that if you file for bankruptcy within seven years of finishing your studies, your Canada Student Loan won’t be discharged. You’ll have to continue paying back your loan.
Tips to repay your student debt faster
1. Make lump-sum payments
Making lump-sum payments at any time will help you pay down your loan faster. Lump-sum payments will go toward interest first and then to the principal of your loan. Paying down the principal reduces the total amount you owe, which means you pay less interest.
If you make lump-sum payments while you’re in school or during the 6-month non-repayment period, the payments go towards the principal of your loan.
2. Increase the amount of your payments
The amount you pay over and above your minimum payment goes toward the principal of your loan, which decreases the total amount you owe, and the amount of interest you have to pay.
3. Budget your payments
Build your student debt payments into your budget and make payments that are larger than the minimum payments. You can also speak with your financial institution about setting up automatic payments.
When planning your budget and automatic payments, make sure you know when your payments are due. Remember that if you have more than one loan or line of credit, you may have more than one payment due date.
Loans in Default
Rehabilitate Canada Student Loans and Canada Apprentice Loans in Default
As of January 1st, 2020, borrowers will have a new option to rehabilitate Canada Student Loans and Canada Apprentice Loans in default. The option is to add interest to the principal of your loan (capitalize the interest) and make two payments to rehabilitate your loan.
Missed loan payments? Can’t make payments? The Government of Canada has repayment assistance options that may be able to help. Contact the National Student Loans Service Centre (NSLSC) and your provincial or territorial student financial aid office to discuss repayment options.
Canada Student Loans
If you have a Canada Student Loan, one of the following measures may be right for you:
- Reduced (or no) Monthly Payments – Through the Repayment Assistance Plan (RAP)
- Reduced (or no) Monthly Payments Disability – Through the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD), and receive financial help with expenses related to your disability.
- Loans forgiven for severe permanent disability – Severe Permanent Disability Benefit
- Loans decreased or increased – Under the Revision of Terms measure – have loan payments decreased if you are having difficulty repaying your student loan debt or increased if you wish to pay off your loan debt more quickly.
- Loan in Collections – Canada Student Loan Rehabilitation may be able to help you.
- Forgiveness – You may be eligible for Canada Student Loan Forgiveness for Family Doctors and Nurses if you are working as a family doctor, resident in family medicine, nurse or nurse practitioner in an under-served rural or remote community.
- Repayment Assistance Plan
- Bring your Canada Student Loan out of collection
- Canada Student Loans forgiveness for family doctors and nurses
- Severe Permanent Disability Benefit
Getting your loan out of collection
If you have missed 9 months of payments, your federal student loan will be sent to the Canada Revenue Agency (CRA) for collection.
Once in collection, you are no longer able to get student aid. To be able to get student aid again, you must bring your loan up to date.
- Contact the CRA to make a payment arrangement and bring your loan up to date.
For the provincial or territorial part of your student loan, you will need to contact your province of permanent residence.
For borrowers from Saskatchewan you may contact the CRA for both federal and provincial parts of your student loan.
Rehabilitate your Canada Student Loan
If your loan is in collection, you may be eligible to bring your Canada Student Loan up to date. To do so, contact the CRA to see if you are eligible to rehabilitate your federal student loan. Make payments equal to two regular monthly payments and choose one of the following options:
- Pay off all outstanding interest on your loan, or
- Add all unpaid interest to the balance of your loan. You will receive a new payment schedule for the new balance.
Note: The option to add the unpaid interest to the balance of your loan can only be done once.
Once you make your payments, call the NSLSC and ask to speak with a Canada Student Loans Program agent. You should receive a new repayment plan within one month.
Bankruptcy doesn’t erase student loans during the first 7 years
Be aware: if you file for bankruptcy within seven years of finishing your studies, your Canada Student Loan won’t be cancelled. You will have to continue paying back your Canada Student Loan.
Industry Canada provides a helpful resource to learn how Bankruptcy affects your Canada Student Loan debts