Graduating from university is an exciting time, especially after years of hard work and dedication. You're starting a new chapter in your life. But for many recent graduates in Canada, this new chapter may come with debt. According to Robertson College, the average student loan debt in Canada is $28,000. Student loans can be a burden, and they can follow you for years. If you create a plan and take action, you can get your debt paid off. In this blog, learn how to avoid having your student loan cause you unnecessary financial pain by using these effective strategies to get it paid off.

Understanding your debt

Many people will have different types of student loans. The first step in managing your student debt effectively is to understand all the details of your loans. Here is the information you'll need to gather before you start your repayment strategy.

  • Loan type: Federal (Canada Student Loans), provincial (e.g., Nova Scotia Student Loan), or private (e.g., student line of credit)
  • Loan amount: Total borrowed
  • Interest rate: The annual interest rate charged on the loan 
  • Repayment terms: Number of months you have to repay the loan, total payments, and the payment schedule
  • Grace period: The time after graduating before you need to start repaying your loan

Gathering this information is important so you have a clear understanding, and can create a plan to pay off the loans. 

Next, see what your repayment options are.

After you've gathered your student loan details, it’s time to familiarize yourself with the repayment plans available for each loan. Private lenders may have different repayment options in their loan terms, so it's important to reach out to your lender directly to see what options you have. Here are some of the common repayment plans for federal and provincial student loans in Canada.

1. Standard repayment plan: The standard repayment plan typically involves making a fixed payment each month for 10 years. These payments can be high if you have a large loan, but there are options to help you if they are unaffordable.

2. Extended repayment plan: If the payments with a standard repayment plan are too high for you, according to NSLSC, you may have the option to customize your payment terms by extending it. With an extended repayment plan, you can lower your monthly payments and extend the repayment period for up to 15 years. You must remember that if you’re paying interest on your loan, you will pay more in interest when you stretch out the payments over a longer term. 

3. Repayment Assistance Plan (RAP): RAPs are typically available for federal and provincial student loans, but eligibility and specifics may differ between provinces. RAPs are for students who are facing financial hardship. It allows them to reduce or suspend their monthly payments for a period of time depending on their financial situation. The Government of Canada will pay any interest on the federal part of the loan that the reduced payment does not cover. And if you are on RAP for 60 months or it has been 10 years since completing school, they’ll begin to pay down the principal as well. You must reapply every six months and, when your financial situation improves enough, you’ll resume making your regular payments. However, your repayment periods may be extended longer and, if your loan has interest, you may end up paying more.

4. Refinancing: If you have multiple loans, you might consider refinancing to consolidate. This means taking out a new loan with a lower interest rate to pay off your existing loans, simplifying your payments to only one a month. However, it may or may not extend the amount of time you'll be repaying your debt, and could increase your total interest paid in the end, even if the interest rate is lower than your current loans.

You also want to be cautious about refinancing government student loans for a couple of reasons. One is that you risk losing the benefits of a government student loan if you refinance it. Things like payment deferments, RAPs and potential loan forgiveness may no longer be available to you because you’re no longer borrowing from the government. Another thing to consider when refinancing a government loan is the tax benefits they may provide. Interest paid on government student loans is tax-deductible. You can receive a 15% non-refundable tax credit, according to the National Bank of Canada. By refinancing it with a private lender, you’ll no longer receive a tax benefit.

Common mistakes new graduates make

It can be challenging and stressful to have to pay back big loans, and many graduates end up making mistakes that make their debt situation worse. Here are a few pitfalls to avoid when it comes time to repay your student loan.

  • Ignoring your payments. Many people may not want to start repaying their loans at all, and there are many reasons. It could be they just don't feel they have the funds for it, or they didn't pursue the discipline they took. It could be they simply don't understand their obligation to repay, or the consequences they'll face if they ignore it. It's essential to take your student loan repayment seriously to avoid damage to your financial health down the road. If you ignore your student loan repayment, it could result in defaulted payments, causing damage to your credit score. Or you may be forced to have your wages garnished, or your tax refund could be redirected to repay your debt. It's best to take responsibility for your student loan debt right away to avoid damaging debt consequences down the road.

  • Giving in to lifestyle creep. When you're entering the workforce with your new degree and have seen a significant income increase, it can be tempting to increase your spending as well. But you must be careful. People can get ahead of themselves when it comes to spending, and end up having much higher monthly expenses. Higher expenses could become difficult to keep up with, and you could end up struggling to make your loan payments. 

  • Relying on repayment deferrals. Using payment deferral programs, such as a RAP, can provide temporary relief when times are tough. But you don't want to rely on these kinds of programs for long because you'll end up paying more for a longer period of time. It's best to begin paying your student loans as soon as possible so you can be free of student debt.

Pay your student debt off early

The best way to deal with student debt is to pay it off early instead of just making the standard regular monthly payment for 10-15 years. This will allow you to pay less interest and free up more money each month once it’s fully paid off. Here are some strategies to get your student loan debt paid off early.

1. Make extra or larger payments. If you have some extra money after you've paid for all your essentials and bills that month, you can make extra payments on your student loan. Usually, you can do this by logging into your student loan account to make a payment, or adding the lender to your online banking as a payee and topping up your payment that month. Also, if you know you can afford to make more than your regular payment each month, customize your payment terms to increase your automated monthly payment. Even if it's just a tiny amount each month, it'll add up and help you pay off the loans faster. If you are unable to make extra payments with your current income, try to increase your income. You could consider things like working overtime hours at your job, or getting a part-time job or side hustle to bring in some extra funds.

2. Increase your payment frequency. Student loan payments are usually set up as monthly payments, but you may have the option to switch to biweekly or weekly payments if you have the funds to do so. Having more frequent, regularly scheduled payments can help get your loans paid off quicker without having to think about doing it each month.  

3. Use the snowball method. This is a great strategy if you have multiple loans to pay off. With the snowball method, you make your minimum payments each month. And then with any extra money you have for the month, you apply it to the smallest balance. Once the smallest debt is paid off, you move the payment on to the next smallest. Getting the smallest debts paid off first can give you a feeling of accomplishment, and motivate you to continue tackling your debts.

4. Consider the avalanche method. This is another good strategy if you have multiple loans. For the avalanche method, you make the minimum payments on all your loans and with your extra money each month, you put it towards the loan with the highest interest rate first, then move on to the next highest interest rate. This can help you save money in the long run, as you'll pay less in interest, but you won't experience that sense of accomplishment as fast as with the snowball method.

It’s important to balance student loan payments against other types of debt. In some cases, if a debt has a high interest like many credit cards do, it may be best to focus on paying that off first, while keeping up with your regular student loan payments. High-interest debts are going to cost you a lot more the longer you carry that balance.  

Paying off your student debt after graduation can be challenging. But by understanding your loans, taking responsibility for them, and using effective strategies to pay them off, you can eventually be free of student loan debt. 

If you’re having trouble figuring out the best way to approach paying off your loans for your situation, try reaching out to a financial professional, such as a Certified Cash Flow Specialist (CCS). A CCS can assist you in creating a cash flow plan including strategies to pay off your debts, and help you reach other life goals, such as saving for a house or planning for retirement.

About CacheFlo

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About the Certified Cash Flow Specialist (CCS) program

CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.

About the Real Life Money program 

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Seige Media. (2024). What’s the Average Student Loan Debt in Canada? 19 Staggering Statistics. Robertson College. URL.

NSLSC. (2024). Loan Repayment Options. National Student Loans Service Centre. URL

Government of Canada (2023). Repayment Assistance Plan – How it works. URL.

National Bank. (2024). What are student tax credits in Canada? URL.