Practical tips on how to manage your student debt

Breaking the bank

Tens of thousands of students across Ontario are now back in college or university, as the new school year begins. While it should be an exciting time to reconnect with friends and continue down the path of higher education, many students are already seeing their student debt pile up in just their second and third years.

According to the Ministry of Advanced Education, in 2017, the average student debt load for college and university students was $17,700. Borrowers typically take between nine and 15 years to fully pay off their loan, meaning students could be nearly 40 years old or older by the time it’s fully paid.

In the 2017-18 academic year, tuition fees increased by over three per cent for undergraduate programs, which means students are taking on even more debt for their studies — and it’s showing.

Joshua Harris, an estate manager with Brampton-based Harris & Partners Inc., has seen more and more younger people coming to their offices with the desire to write off student debt with bankruptcy.

“We’ve seen student loans increase dramatically, not only because of rising tuition, but also because of rising rents. The availability of credit cards is also causing students to spend a lot more money than they have traditionally, and so we’re seeing a lot more younger people, under age 35, coming to us with the expectation that they can remove all of their debts, including student loans.”

But writing off student debt with bankruptcy isn’t that easy, because legally you must have been out of school for at least seven years before you can consider this an option. Not to mention the negative consequences of bankruptcy, such as poor credit for several years.

While getting a student loan through OSAP has never been easier, it’s important to manage your student loans while in school, so you don’t end up paying for decades to come.

Harris & Partners Inc. advises the following tips on how to manage student debt:

Understand OSAP payment requirements: Before taking out an OSAP loan, ensure that you fully understand the commitment you are making. Under this program, you can borrow money to fund your education, and any interest incurred in the first six months is covered by the Ontario government. However, your repayments are expected to start six months after graduating, regardless of your employment status and income.

If you are unable to find work six months after graduating, one of the ways to keep your loan in interest-free status is to return to school so that you do not have to begin repayment. You do not have to take out a new loan, but you may be eligible for one.

If you don’t want to go back to school, there are opportunities to apply for interest relief. You should check the appropriate Service Canada web links to see if you qualify.

Work while studying: It might seem like a no-brainer, but a lot of people don’t work while going to school. If you can work full time during summers and part time while you are in school, you will lessen your debt load and may have a job that you can fall back on when your studies are done. Managing your debt before, during and after your college or university studies is a crucial skill to learn and achieve for your financial future.

Make all efforts to repay your student loan quickly: If you are working, you can repay your loan faster by making payments above the minimum monthly amount. You can pay your principal directly by increasing the size of your monthly payments and/or by making lump sum payments. Any extra payment you make reduces the outstanding loan amount and the total interest you will have to pay.

Get professional debt help when needed: If you cannot pay back your government student loan each month and need more time to pay, you can request to have the terms of your loan changed through the National Student Loan Service Centre (NSLSC) or your financial institution. Under a revised plan, you may temporarily or permanently extend the terms of your loan to reduce your monthly payments or make interest-only payments for a short period.

There is also a repayment assistance plan (RAP) available if you cannot make your payments, subject to your application’s approval. Under this program, the Canadian and Ontario government will pay the interest owing that your revised payment does not cover. This could last for up to 10 six-month periods or 60 months during the 10-year period after you leave school. Additional RAP applies for borrowers with a permanent disability.