How can I pay off my student debt?

By Jillian Taylor-Mancusi, Licensed Insolvency Trustee at LC Taylor

As told to Jessica Martel

Here’s the answer to this week’s reader question. 

“Please, is there anything that can help me with my student debt?”

–Aman

How to pay back student loans and debt in Canada

If you took out federal student loans, your repayment period is supposed to begin six months after you leave school. You have up to 15 years to fully repay your loans. To start paying off your debt, you can set up a payment plan with the National Student Loans Service Centre (NSLSC). Here’s how to do it.

1. Determine how much you can afford to pay each month. To do this, you need to know your monthly expenses. The best way to figure this out is by tracking your income and expenses for at least three months so you can get average amounts for your finances. 
2. Calculate your total student loan debt. What’s the total amount of government student debt you owe? Once you know, take this number and divide it by 14.5 years (since you’ve had a six-month grace period since graduating), or 174 months, to get your minimum monthly payment. 
   For example, say you have a balance of $30,000 in government student loans: $30,000 ÷ 174 = 172.41 per month. 
   Once you have your minimum payment, decide if this amount fits into your budget. Consider if you can afford to pay more, so you can close your student loans quicker. 
3. Set up preauthorized payments. The easiest way to prioritize repaying your government student loans is by signing up for preauthorized debits. You can do this by accessing your NSLSC account from My Service Canada Account (MSCA). 
   You can establish automatic withdrawals from your bank account to prevent missing a payment. You can decide if you want your payments to come out every week or every two weeks, whatever works best with your income stream. This way, there’s no chance of forgetting to make your payments. Canada Student Loans usually processes payments at the end of the month. 

What if I can’t afford to pay my student debt?

If you’re really struggling to pay off your student loans, you can look into the Repayment Assistance Plan (RAP), which is a government program meant to help people who are finding it difficult to repay their student loans. 

Depending on your income, you may qualify to have your payments reduced or waived. You can apply to the RAP program when your repayment period begins—usually six months after graduation. After you’ve been on RAP for 60 months, or you’ve been out of school for 10 years (whichever comes first), the government will start to pay off your remaining balance. 

To be eligible for RAP, you must: 

• live in Canada, be on an international internship for a year or less, or be a reservist or spouse of a reservist deployed abroad;
• have started your loan repayment period, which means at least six months have passed since you’ve graduated or left school;
• and be up to date on your loan payments.

You can apply for RAP online through the NSLSC or by mail by completing the Repayment Assistance Plan Application form. If you don’t qualify , you can reapply if your financial situation changes. For example, if you lose your job, your expenses go up or you have a child, you can reapply to see if you qualify.

One more tip: avoid borrowing from financial institutions to repay federal student loans, as you’d be taking on interest charges to pay off an interest-free loan. 

If you find yourself in a position where you simply can’t afford to repay your student loans, even if they’ve been reduced through RAP, and you miss payments for an extended period—typically about nine months—the government can send your loans to collections. At this point, you might consider speaking to a Licensed Insolvency Trustee about debt relief options, such as bankruptcy or a consumer proposal.  

These are federal debt solutions that can help to reduce or eliminate debts. Student debt is eligible in a consumer proposal or bankruptcy if you’ve been out of school for seven years. If there’s hardship, you can make a court application after five years. 

Hope this information helps.

Jessica Martel, MSc is a freelance writer, researcher, and certified financial education instructor (CFEI). She is based in Calgary, Alberta. 

Read more from this issue of The Get:

1. How much do Canadians tip?
2. MVP: Dominique Fils-Aimé on where soul meets self-discovery in her work
3. How to manage the costs of being single
4. True or False: A secured credit card isn’t really a credit card

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