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Canadians who have taken out student loans and are in repayment can benefit from payment plan options, debt repayment strategies and an in-depth understanding of their loans, experts say.
Student loans in the 2021 academic year totalled $4 billion and were administered to 576,000 students, according to the latest data from Canada Student Loans.
Paying down student debt is often regarded as less of a financial priority due to the low interest rate often attached to these particular loans, but young graduates should still be diligent and organized in making these payments, Natasha Macmillan, director of everyday banking ratehub.ca, said in an interview.
“If consumers have a lingering student loan on their credit history, it can make it more challenging to secure other loans such as a mortgage or favourable rates with credit cards,” she cautioned.
The best way to tackle a student loan is to have a budget in place that includes it, Macmillan added.
“Many people find the 50/30/20 strategy effective when it comes to organizing their finances. This is when someone allocates 50 per cent of your income to essentials such as food, rent and loans, whereas the other 30 per cent goes to wants and the remaining 20 per cent is put away for savings,” she explained.
If someone is able to make a little bit more than the minimal payment required a month, this would also help speed up repayment and reduce the interest paid, Macmillan added.
If someone is struggling to pay back a loan, the National Student Loans Service Centre (NSCLC) offers several options. Their website states that borrowers can tailor their repayment plans to suit their budgets, though this can result in a longer period of debt repayment. Individuals can also apply for a repayment assistance plan (RAP) which either lowers or suspends payments for a sixth month period, or they can explore debt suspension options should they be faced with a medical or parental leave.
Should you miss a payment, you can call the lender to explain why, or arrange for alternative payment methods, said Joshua Harris, licensed insolvency trustee at Harris & Partners.
“Students need to take their loan repayment very seriously because several missed payments will eventually cause the loan to (be) dealt with by Canadian Revenue Agency (CRA) and tax benefits can be withheld from as collateral,” he explained.
In the worst case scenario, a graduate will be able to file for insolvency or bankruptcy on their student loan but only if they’ve been out of school for seven years, Harris said.
This however comes at cost of its own, he added.
“Once you file for bankruptcy for a student loan, you will never be eligible to receive another,” Harris said.