The Ultimate Guide to Canada Student Loans
$26,819. The average amount of student loan that a Canadian student graduated with in 2015. Not only do you now have to figure out what to do with your life, or how you’re going to find a job, but you start off with almost $27,000 of debt. It’s messed up. I know.
But it doesn’t have to be this bad. I mean, I can’t tell you what to do with life, or how to get a job, or pay studentloan, but I shed some light on how it works and how to take control of it. More importantly, I can point you to the government programs out there to help pay for part of your debts.
And once we find ways to reduce the total amount you owe, we can look at how to drop your interest payments.
So let’s get started.
What is Canada Student Loan
The most common type of debt is the ones issued by the government to help you get through your education. When you get a loan from the government, you actually get it from two different governments: the federal and the provincial. Each provincial government is responsible for distributing loans to support their students. They will call themselves different names, such as Ontario Student Assistance Program (OSAP) in Ontario, or Student Aid BC in BC. But they all serve the same function – to get you and I through school.
Once you graduate, you are no longer dealing with the provincial group (assuming your student loans came from Ontario, B.C., Saskatchewan, Newfoundland, or New Brunswick). Instead, you’re now dealing with National Student Loans Service Centre (NSLSC) who oversees what is known as Canada Student Loan.
If you’re not in one of those provinces, your federal loan is still with NSLSC. The nice thing about NSLSC is that you can customize your repayment terms online, allowing you pay more or less depending on your current situation.
When you first get contacted by NSLSC (before your 6 month grace period is over), they will ask you if you would like to commit to a fixed rate or a floating rate. A fixed rate, is just like it sounds, it’s a fixed interest payment so that even if interest rates go up in the future, you wouldn’t be affected. That said, the cost of a fixed rate is prime + 5.0%.
What is prime? Glad you asked. Prime is the current interest rate influenced by the government of Canada to determine the lowest amount banks should be charging to loan out their money. Well, it’s not as simple as that, but that’s essentially what it does for what we need to know. As of now (Apr 2017), prime is currently at 2.7%.
This means that if you were interested in a fixed rate, your interest rate would be 2.7 + 5 = 7.7%.
Your other option, and the more popular option, is a floating rate (which is at prime + 2.5%). A floating rate is another way to say a variable rate. It will match what the current prime rate is. Meaning that as of this moment, a floating interest rate would be 2.7 + 2.5 = 5.2%.
If the government drops the interest rate, prime will go lower, meaning you pay less in interest. The chances for this are highly slim as our interest rates have never been this low in Canada. On the other hand, if the government increases the interest rate, prime rates will also go up and so will the amount you get charged for your studentloan. Please keep in mind this isn’t exactly how it works, but in order to keep it simple, this is pretty much always true.
So in order for the floating rate to be worse than the fixed rate, you will need to see prime increase by 2.5% (7.7% – 5.2% = 2.5%). How long will it take for that to happen? I have no idea. But if you’re interested in seeing Canada’s historical prime rate, check out ratehub.
So what does that mean for you? In order to help you through this, the first question you should ask is how long do you expect to take to pay your loan off? Will it be within 5 years? Within 10? Or over 10? The less time you expect to take, the more likely that the floating rate won’t catch up to fixed, meaning you will be better off with getting the floating rate. Also, even if floating does surpass fixed, how many months, or years will it take before that happens? During that time, how much more of your principal would you be able to pay off as opposed to going to fixed right away?
I also personally believe that banks will not offer you a fixed rate if they will lose money on it. That said, I am personally using the floating rate of prime + 2.5%.
The Benefits of Having Canada Student Loan
Customized payment terms
I don’t know about you, but I love knowing that I have options, and having options for my canada student loan monthly repayment is a huge bonus for me. So long as the amount I want to pay monthly is above their minimum threshold, I can easily log onto NSLSC and create the new terms. That’s right boys and girls, the whole process is electronic and takes effect within days!
This was actually really useful when I applied for my mortgage to buy my house. At first, I was putting a lot more money into my student loan, but then I found out that my high payments was actually hurting my ability to qualify for a mortgage so I dropped the amount paid down (for those curious, it’s called the debt to income ratio). After dropping it, I was able to qualify with flying colours and have increased it slightly again since then.
You can also choose what day you would like your payments to be taken out from your bank account. This is particularly helpful if you already have a bunch of payments to make at the beginning of the month (ie rent), so you can time your canada student loan payment to be a few days after your second paycheque.
The final customization option is making a lump sum payment. All you have to do is create NSLSC as a payee on your banking account and make a payment that way. So if you ever run into a windfall (say your tax rebate), you can put it all into your student loan right away.
Not too bad from a customization perspective, eh?
Student Loan Interest Tax Credit
Another benefit of Canada student loan is that you will qualify for the student loan interest tax credit. This means that you’ll be able to reduce your taxes that you might owe, or more likely, increase the tax refund that you get. Another way to look at this is the interest rate you pay is actually higher than the actual interest rate you pay after you get back your tax return.
Huh? Yeah, that’s confusing. So let’s use an example instead. Let’s say you paid $1000 in interests for the year. The government will then give you the appropriate documents for you to claim back $150 ($1000 x 15% = $150). This means that you really only paid $850 ($1000 – $150 = $850).
Now to use a more generic number, let’s say you went with the floating rate. Prime is still at 2.7%, meaning your interest rate is 5.2%. Because you’ll get back 15% of it, you’re really only paying 4.42% (5.2% x (100% – 15%) = 4.42%) as interest. If you’re curious about how much you really pay with the fixed rate, it is 6.545% (7.7% x (100% – 15%) = 6.545).
It’s not much, but hey – it still is money!
Repayment Assistance Plan
The newest Canada student loan benefit. In late 2016, the Liberal government announed that Canadians will not have to repay their Canadia student loans until they make over $25,000 a year! They called this the Repayment Assistance Plan.
According to NSLSC: The Repayment Assistance Plan (RAP) and the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD) makes it easier for you to manage your student loan debt by reducing your monthly payment.
- Your monthly student loan payments would either be reduced or you would not have to make any payments, depending on your financial situation. If you have a permanent disability, it could also depend on your permanent disability-related expenses, which include allowable uninsured medical expenses, special care and other expenses directly related to your permanent disability.
- Enrolment is not automatic and you must re-apply for this plan every six months.
That means if you are single, and are making under $25,000 gross income and have passed the grace period, you can apply for the government to step in to help pay some / all of your interest payments. Even if you are making more than that, you may be eligible for the government to make some of your interest payments.
As NSLSC has mentioned, enrolment is not automatic and you must fill out the online application to be enrolled and re-enrolled for the program.
This reduced monthly payment can continue for up to 10 years after you leave school. If by that point you still have your Canada student loan, and you still qualify for the repayment assistance program, the government will step in to pay both your interst and principal.
To find out if you may qualify, NSLSC has created a Repayment Assistance Estimator.
So whether you are working at minimum wage, working part time, or currently unemployed this is an incentive that you should really look into.
I’m actually on this right now because I was recently let go from the start up that I worked for. I qualified for Employment Insurance, and also qualified for the repayment assistance.
A way to work abroad
Many people have talked about using the CSL RAP to help lower the burden of their expesnes while they are not making much money. However, there’s something else that the repayment assistance program allows that no one seems to be talking about: you can work abroad and have your Canada student loan monthly payments be covered by the government.
Here’s a screenshot of the exact words that the government of Canada uses to determine eligibility:
So why should you care? We know that finding a job these days is hard, especially if you just graduated and have no real experience. So a great option would be to go abroad first and get experience. Being one who has multiple friends around the world, I can tell you that we have a great reputation abroad and if you ever go to a place that doesn’t have English as their first language, you are instantly in demand.
Even if you don’t find a job in the field of your study, you will come back with experiences that none of your peers will have, making it that much more likely that you’ll be called in for an interview.
Plus, who wouldn’t want to experience living in another country (that’s actually what I’m planning to do this year).
Anyway, if this is something you’re interested in exploring, I suggest checking out AIESEC. They are an organization focused on providing people with international internships and have connections all over the world. I’m actually using them right now and have an interview with a company in Belgium and a company in Latvia.
Other Student Loan Forgiveness Programs
The Canada Student Loan Repayment Assistance Program is by far the most well known federal student loan forgiveness program, but there are some other ones out there that might help.
Note: This may not be a complete list as government programs are always changing. If you notice anything missing, please leave a comment below so we can keep this as up to date as possible.
Federal Student Loan forgiveness programs
Canada Student Loan forgiveness for family doctors and nurses
If you are a doctor or nurse that completes at least 400 hours of in person service over the course of a 12 month period in an under-served rural or remote community, you may qualify for the Canada Student Loan forgiveness for family doctors and nurses.
How much? If you are a family doctor or resident in family medicine, you could receive up to $40,000 in Canada Student Loan forgiveness over a maximum of five years ($8,000 per year).
If you are a nurse or nurse practitioner and you qualify, you could receive up to $20,000 in Canada Student Loan forgiveness over a maximum of five years ($4,000 per year).
Note: the five year service does not need to be consecutive.
Repayment Assistance Plan
Similar to the Canada Repayment Assistance Plan, the Alberta government has a program to help students reduce the financial burden by providing interest and potential principal repayments. Make sure you reapply every 6 months.
B.C. completion grant
If you are a full-time student who has successfully completed a year of your studie is, you may have the B.C. portion of their Canada-B.C. integrated studentloan debt reduced by the provincial government. This is an automatic process and is only available for the first four years of a non graduate program.
B.C. completion grant for graduates
If you have recently graduated from an elligible undergraduate program in B.C., you may qualify for this grant worth up to $500. You must apply for the B.C. completion grant within one year from your study period end date (the last day of your studies to earn your credential, not your date of convocation).
Pacific Leaders loan forgiveness program
If you have ever thought about working for the public, this might tip you over the fence. The Pacific Leaders loan forgiveness program is a program that promotes the B.C. public service as a potential employer to new post-secondary graduates, and a progressive employer to current employees.
How? By offering to forgive 1/3 of your outstanding B.C. student loan each year. In other words, you’ll be debt free in 3 years of working with the B.C. public service!
Note: this is only for the B.C. portion of your loan. You will still have the federal student loan to pay.
B.C. loan forgiveness program
Similar to the Pacific Leaders loan forgivness program, the B.C. loan forgiveness program is focused on getting recent graduates to work at publicly funded health care facilities in underserved communities in B.C., or working with children in areas where there is an identified shortage in B.C.
Although they are not offering to forgive you at a rate of 1/3 per year, they are willing to forgive your B.C. loan up to 20% a year. Moreover, it seems like the requirement is that you must provide at least 400 hours of in person service, leaving you with the ability to potentially have another job.
There are a lot of details about this program so make sure to check it out.
Stay Up to Date
Stay up to date on the latest B.C. loan forgiveness programs.
Repayment Assistance Plan
Similar to the Canada Repayment Assistance Plan, the Manitoba government has a program to help students reduce the financial burden by providing interest and potential principal repayments. Make sure you reapply every 6 months.
Timely Completion Benefit
If you have recently graduated from an educational institution in New Brunswick (within 7 months), you may be elligible for the Timely Completion Benefit. This provincial loan forgiveness program allows you to have all your provincial student debt in excess of $32,000 forgiven by the government. There are a few other terms and conditions, but most of them are related to graduating on time.
Newfoundland and Labrador Debt Reduction Grants
The Newfoundland and Labrador Debt Reduction Grants will automatically access if you are qualified.
0% Interest on Nova Scotia Student Loans
If you meet their criteria (seems like most people will), the Nova Scotia government will be willing to pay your interest payments for the Nova Scotia portion of your student loan. You will still be required to pay for the Federal portion though.
Debt Cap Program
The Debt Cap Program reduces total student debt for eligible Nova Scotia Student Loan borrowers. You are automatically considered for the debt cap program after graduating. As with the previous program, you will still be required to pay for the Federal portion of your loan.
Nova Scotia Loan Forgiveness Program
The Nova Scotia Loan Forgiveness Program recently replaced the Debt Cap Program. There doesn’t seem to be any changes in ellibility requirements.
Repayment Assistance Plan
For all you in Ontario – get excited. Because the Ontario government is going to be increasing the Canada student loan repayment assistance program threshold from $25,000 to $35,000 in 2018. Just remember to apply and reapply as this is not automatic.
One-Year OSAP Grace Period for Entrepreneurs
If you have recently graduated and your loan is not in repayment status (meaning that you’re still in your 6 month grace period), you can apply for the One-Year OSAP Grace Period for Entrepreneurs. By applying for this, your grace period extends from 6 months to 12 months (giving you 6 more months). The Ontario government will also pay for your interest during this time (as opposed to having it accumulate during the grace period).
One-Year OSAP Grace Period for Not-for-Profit Employees
As with the One-Year OSAP Grace Period for Entrepreneurs, the One-Year OSAP Grace Period for Not-for-Profit Employees will extend your grace period from 6 months to 12 months if you work for an elligible not-for-profit organization. And yes, your interest is going to be paid by the Ontario government during this time.
Stay Up to Date
Stay up to date on the latest Ontario loan forgiveness programs.
Prince Edward Island
Debt Reduction Grant Program
If you took out more than $6000 in student loans each year, you may be eligible for the debt reduction grant program which would reduce your student loan up to $2000 per year of study.
Deferred Payment Plan
Similar to the Canada Repayment Assistance Plan, the Quebec government has a program to help students reduce the financial burden by providing interest and potential principal repayments. Make sure you reapply every 6 months. A bonus with Quebec’s Deferred Payment Plan is that you might be able to have your private student loans count towards this program (as opposed to just government student loans with Canada Repayment Assistance Plan).
Loan Remission Program
The loan remission program is available to you if you have recieved burisies every year throughout their schooling period. Once you gradaute, you can apply for this program and get up to 15% of your student loans forgiven.
Stay Up to Date
Stay up to date on the latest B.C. loan forgiveness programs.
Graduate Retention Program
Although not exactly a loan forgiveness program, the Saskatchewan Graduate Retention Program will give you up to $20,000 in tutition rebate over the course of seven years. The nice thing about this is that you can qualify for this so long as you are living in Saskatchewan (meaning you could move there and qualify).
Other Types of Student Loans
So now that we’ve covered all the government sponsored loans and all the ways you can potentially reduce your debt burden, let’s look at the other ways you might have financed your education.
Lines of Credit
A line of credit (LOC) is a predetermined loan that allows you to spend to a certain amount. The good thing about a line of credit is that you don’t get charged anything if you don’t use it.
But in this case, we’re assuming that you have used your line of credit to get through school. Assuming you have a cosigner (probably your parents), your interest rate would probably be around prime + 1%. If you’re doing some sort of masters program, it could even be at prime (that’s what my cousin currently has).
If you have a line of credit, this is the time you should get a little creative while you can. Although you were granted a line of credit for school, you can use it however you want. This means that if you have any other debts (ie credit card), use your line of credit to pay it off so the amount you pay in interest drops.
As for whether you should use your line of credit to pay off your Canada studentloan… You’re almost always better off doing so. For example, when we talked about the benefits of having Canada student loans, one of the reasons was the tax credit. However, the rate even after the tax credit was 4.42% for the floating rate and 6.545% for the fixed rate. If you qualified for a line of credit of prime + 1%, your interest rate is 3.7%. There’s a 0.72% savings in going with the line of credit.
And if you got yourself an interest rate of prime (2.7%), your saving 1.72%. That’s a lot!
Of course, the downside with putting all your student debt on your line of credit is that you will not qualify for any of the student loan forgiveness programs.
I don’t have much to say about this. If you have any credit card debt from school, pay it off now. If you don’t have the money to pay it off now, borrow from anything else and pay it off. I’m only half joking there. Your credit card’s interest rate is probably close to 20%. If your source of borrowing is under that, you’re probably better off borrowing from it and paying this off. This is definitely true if you have a line of credit.
If your problem is that you’re going to just max it out again and owe money, then cancel all your credit cards, go back to your goals and ask yourself if you’re willing to never see those goals come true because of your current spending habits.
There’s a section about taking care of credit card debt if you want more actionable suggestions.
The Best Way to Pay Off Your Student Loans
So now that we’ve gone through the 3 most common student debt, how should you go about paying off your student loan?
1. See what student loan forgiveness programs you may qualify for
What better way to pay off your loan than to have parts of it forgiven. It’s like getting free money. Make sure you check out the Student Loan Forgiveness Programs section to see if you can qualify for any of them.
2. Talk to your parents
The cheapest way to pay off debt is seeing if your parents will be willing to pay it off for you first and then you pay them back. Of course, interest free would be the best deal for you, but wouldn’t be fair for them since they could’ve done something else with their money. So I suggest paying them at a fixed rate, say at the current prime rate. In other words, even if prime goes up or down in the future, you will continue to pay them back. If you’re looking to find a way to calculate how much that would translate to, use this calculator.
Of course, this only works if your parents are not borrowing themselves to pay this off for you. If they are, it would only be fair for you to pay them exactly how much they’re paying.
If this isn’t an option, let’s move on to your other options.
3. Use Your Line of Credit
If you have any credit card debts, borrow against your line of credit and pay off the credit card debt. You’ll save boatloads of money that way.
Besides the credit card debt, do you happen to have any other debts or loans? Say a car loan or something? If you do, which one offers you a lower interest rate? Hopefully, it’s your line of credit. If it is, I suggest borrowing from your line of credit and paying the other loans. That way, you’ll be able to save more.
As for whether you want to pay off your Canada student loan with your line of credit – it’s up to you. Financially speaking, you will save a lot of intrest by doing so. However, you will not qualify for any other loan forgiveness programs or the repayment assistance plan if you decide to move forward with it. But if you’re already working a full time job and you are pretty confident that you’ll be able to stay employed, you would not qualify for any of the programs so using your line of credit to pay off your Canada student loan might be best.
4. Customize your NSLSC repayment schedule
If you’re still reading this, it means that you decided to keep your Canada student Loan separate. So the next thing you’ll need to decide is how much can you afford to pay to the loan each month. Don’t worry about finding the perfect amount or anything, you’re able to change it as often as you need.
In order to customize your NSLSC repayment schedule, follow these steps:
- Login to NSLSC
- Under repayment option, click on customize my repayment terms
- Click on customize my repayment
- Enter in how much you would like to pay.
5. Read the guide on saving money
I’ve written a guide that can save you over $3000 (and no, it has nothing to do with cutting consumption). Take a read, and apply those savings into paying off your debt. It’s as if you’re getting free money!
Now that you know everything you’ll ever need to know about student loans, how do you plan on tackling it?