Experts emphasize that Canadians who have taken out student loans and are in repayment should take advantage of various payment plan options, debt repayment strategies, and a thorough understanding of their loans.
According to the latest data from Canada Student Loans, student loans in the 2021 academic year amounted to $4 billion, benefiting 576,000 students.
Despite the low interest rates often associated with student loans, young graduates should remain diligent and organized in making their payments, as having lingering student debt on one’s credit history can make it challenging to secure other loans or favorable rates with credit cards, warns Natasha Macmillan, director of everyday banking at ratehub.ca.
To effectively manage student loans, Macmillan suggests creating a budget that includes loan payments. The 50/30/20 strategy is a popular approach, where 50% of income is allocated to essentials like food, rent, and loans, 30% for wants, and the remaining 20% is saved.
Making higher-than-minimum monthly payments can expedite repayment and reduce overall interest paid.
For those facing difficulties in repayment, the National Student Loans Service Centre (NSCLC) offers various options. Borrowers can customize their repayment plans to suit their budgets, which may extend the repayment period. Alternatively, they can apply for a repayment assistance plan (RAP), allowing lower or suspended payments for up to six months, or explore debt suspension options for medical or parental leave situations.
If a payment is missed, contacting the lender to explain the reason or arranging alternative payment methods is crucial to avoid serious consequences. Joshua Harris, a licensed insolvency trustee at Harris & Partners, cautions that multiple missed payments may result in the Canadian Revenue Agency (CRA) dealing with the loan, leading to withheld tax benefits as collateral.
In extreme cases, graduates can file for insolvency or bankruptcy on their student loan, but this option is only available if they have been out of school for at least seven years. However, this choice comes with its own costs, as once bankruptcy is filed for a student loan, future eligibility for another loan is lost, as highlighted by Harris.