Options For Paying Off Your Student Loans

Seek Out Debt Relief If You Can’t Manage The Payments

Options For Paying Off Your Student Loans

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By Mark Swartz
Monster Contributing Write
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Not all people with student loans will be like Toronto resident Alex Kenjeev. When he’d saved enough to pay off more than $114,000 in school related debt (for undergraduate, law school and MBA degrees), he walked into his bank with the full amount – in cash – in a grocery bag.
 
The Canadian Federation of Students says the average debt for university graduates is almost $27,000. Today, nearly two million Canadians have student loans totalling $20-billion. That’s a lot of grocery bags!
 
You needn’t be crushed by the weight of your student loans. There are options available to reduce your debt load, thus making your worklife more manageable.
 
The Most Common Option: Paying Down Your Loans Normally
 
Depending on your province, there may be two levels of government in Canada that provide student loans. On a federal basis, loans and grants are organized by the National Student Loans Service Centre. Many provinces have their own lending programs as well that integrate with federal initiatives.
 
You start to repay your loans at the end of the 7th month after you leave school. The usual loan repayment period (the time in which you are given to pay off the loan in full, including accumulated interest) is 9.5 years.
 
You “consolidate” your loan with a financial institution in order to pay it off. It involves personal budgeting and some financial discipline on your part. If things are going well for you and you’re able to pay off your loans faster, you’ll save on interest charges, and improve your credit rating.
 
Basic Debt Relief
 
If you find yourself struggling somewhat to keep your loans in good standing, basic relief can be had by varying the terms of payment. The rules for this will differ according to the federal or provincial student loans regulations.
 
The simplest way to relieve some payment stress is to lengthen the repayment period. You can extend the normal 9.5 year payback to longer. For federal loans, 14.5 years is the maximum. Some provincial programs allow for up to 15 years.
 
Extending the term means you pay less per month, but you pay over a longer period. It takes some pressure off in the short term. However you end up paying extra accumulated interest on the loan.
 
Meanwhile take advantage of tax credits

 
Any interest paid on your student loan is eligible for a 15 percent Income Tax credit.  So if you paid $1,000 in interest over the course of a year, you would get $150 back on the Income Tax you paid.
 
Moderate Debt Relief
 
If the loan payments have become more troublesome for you, alternative solutions are available. Note that your loan will still need to be in good standing in order to qualify.
 
One option is to temporarily pay only the interest portion of your federal student loan. This is a revision to the Terms of Payment that you can use for 12 months over the full period of your loan.
 
Another route federally is through the government’s Repayment Assistance Plan (RAP). If you qualify, you may eligible for reduced monthly payments, or no monthly payment at all for a specified period. You can make affordable payments based on your gross family income and family size. The loan payments would never exceed 20% of your gross family income.
 
Do you happen to have a permanent disability? Or are you a doctor or nurse working in a rural community? There are federal debt relief programs you can apply for.
 
At the provincial and territorial level, check with your particular region’s government to see what current student debt alleviation is offered.
 
Severe Debt Relief
 
If things get really tough, you might end up defaulting on your student loans. Default is when your account is overdue for 150 days on a provincial loan, or 270 days for a federal loan.
 
Unfortunately this could harm your credit record, result in having your account referred to a collection agency, or even getting liens placed against your assets. Furthermore you won’t qualify for most other loan relief programs.
 
To get your loan back into good standing you must first make six consecutive loan payments, and pay off any outstanding charges accrued during the period of default. But any of these late or missed payments will appear on your credit report for six years in most provinces. They may also show up when an employer does a background check on you.
 
Bankruptcy is a final resort for the cash strapped. Student loans in Canada are not automatically discharged in a bankruptcy or consumer proposal unless they’re over seven years old. Even so, the government could oppose you and you might still have to pay some of the loan back. There is also a special rule that says, in cases of “hardship”, you can apply for bankruptcy after just five years to have your student loan reduced or discharged.
 
Maintain Your Payment Schedule And Ask For Help Early
 
Most people end up paying their student loans off on time, or a bit early. They lock in their rate if interest is headed upward, or go variable when rates are low or falling.
 
By keeping your payments up to date, and by budgeting reasonably, you’ll eventually be free of student debt. But if you hit a financial dry spell, reach out sooner than later. Work closely with your loan provider. Speak to specialists at the federal or provincial student lending programs.
 

The investment you’ve made in your education will pay off over time. Manage your post-secondary debt properly like the smart person you are.