Dealing with Student Debt
For many young people, student debt is an issue. According to Statistics Canada, the average Canadian university graduate leaves school with over $26,000 in student debt. This can obviously be a real hindrance in life. Not only are these debts difficult to repay, but having this sort of big financial commitment can cause people to delay various life milestones. For instance, if you have to spend a significant portion of your income on student debt, you may have to delay buying a home, getting married, travelling, having children, or various other goals.
If you’re struggling with student debt, here are some tips that could help you.
Understand Your Student Debt
If you have debt, one of the first steps is to understand what you’re dealing with. Learning the specifics of your debt will help you come up with a plan to repay it. If you have student debt, a good place to start is by verifying which government (federal or provincial/territorial) or financial institution you owe.
You’ll then need to figure out how much you owe, when you need to start repaying your loan, the interest rate you’re being charged, and more.
The details are important. For instance, on Canada Student Loans, there is a six-month non-repayment period after you graduate. You won’t need to make payments and you won’t be charged interest. However, you can still make payments during this time and that may be a good idea if you can afford to do so. That’s because you’ll reduce the amount you owe before monthly interest starts accumulating.
The terms of provincial or territorial student loans will depend on the province or territory that holds your loan.
Once you understand more about your student debt, it’s time to come up with a strategy for how to pay it. Look at your budget, figure out how much you can afford to pay each month, cut expenses as necessary to make your budget balance, and make sure you keep your deadlines and due dates in your calendar so you don’t miss any payments.
Avoid Other Debts
While student debt might make life difficult for you for a while, you can do yourself a favour by not adding on any other debt. This means you’ll want to stay away from accumulating credit card debt, using your line of credit, and increasing your debt load in other ways.
Two things that can help you avoid other debts are making a budget and tracking your spending. Create a budget that balances, meaning that it allows you to afford all of your expenses without spending more than you earn in a month. To make this possible, you may need to cut some nonessential expenses.
Tracking your spending will help you stay on budget. Note each purchase shortly after you make it (in your phone, in a notepad, etc.) and make sure you record everything, even the smallest expenses. This will help you see where your money is going so you don’t inadvertently spend more than you should.
The Repayment Assistance Plan for Student Debt
If repaying your student debt is giving you problems, you may qualify for the government’s Repayment Assistance Plan (RAP). This is a plan that helps people make their student loan payments by providing assistance from the federal government or provincial or territorial government.
The plan is designed so that you may not be required to make payments that exceed your income by 20%, or any payment at all, depending on your income. You need to apply for the RAP and you must reapply every six months. If your application is accepted, the government will pay the interest owing that your revised payment does not cover. After 60 months of being in the RAP (or ten years after you finish school, whichever comes first), the governments will begin to cover the principal and interest that exceeds your reduced monthly payments. The goal of this plan is to gradually pay the student debt off so that your repayment obligations do not exceed 15 years.
Getting Help with Student Debt Issues
If you are struggling with student debt, a Licensed Insolvency Trustee can help. Student loan debt can be included in insolvency processes (such as bankruptcies and consumer proposals) if you have been out of school completely for at least seven years. However, even if you have not been out of school for this long, a trustee may still be able to help you.
They will review your situation, give you details on all available debt relief options, and help you get the information you need to make a wise choice for your financial future. If you haven’t been out of school long enough to have your student debt included in an insolvency process, but you have other debts that are making it difficult to make ends meet, working with a trustee can still be very beneficial. Most trustees offer a free consultation.