September 10, 2021
Having student loan debt is common for most who graduate post-secondary. Sometimes paying off that debt is a challenge, though. We look at how to manage student loan debt here.
Anyone with student loans knows that managing this debt can present significant challenges and remain a source of concern for years to come. The government of Canada has now eliminated interest on federal student loans, which will save the average borrower $520 a year, but some provinces still charge interest on their portion of student loans.
Many current and former students are understandably worried about the challenge of repaying these debts, especially considering economic uncertainties and job market conditions. We spoke to BDO Licensed Insolvency Trustee, Ilan Kibel, to learn his solutions for those with student debt issues.
If you’re struggling to afford your student loans the first thing you should do is see if there are any government assistance programs that can help.
One option might be the federal government’s Repayment Assistance Plan which, depending on your income, can reduce your payments or even reduce them to zero.
To qualify for repayment assistance for your student loans, you can apply when you begin repaying the loan or at any time during the repayment period. However, it's important to note that you will need to re-apply every 6 months to maintain your eligibility.
Many provinces also offer help for students struggling to affording their loans, this may mean extending the loan period in exchange for lower payments. Research what assistance is available to you in your province.
The average student loan debt in Canada for an undergraduate degree is about $28,000; for college, it’s $15,300.
If this sounds like you, then tracking your spending and budgeting are crucial to managing student debt.
“Tracking your spending is the real key to good budgeting habits”, says Ilan Kibel.
“It’s great to set up a budget, which is most probably the easiest step, it’s now tracking that budget that will help you make better financial decisions over time. You’ll see where you’re too much spending and where you can cut back.”
Budgeting will help you ensure you’ve got money set aside for your next loan payment.
There are a wide variety of budgets you can choose from; we’ve collected a list of some of the most common ones with their pros and cons.
You can also use our budgeting planning tool to get you started.
If you took out a loan through a bank or other private financial institution to pay for school, you may be able to refinance the loan. Government loans cannot be refinanced.
One of the primary benefits of refinancing is the opportunity to secure a lower interest rate than your current loan. A lower interest rate means you'll pay less in interest over the life of the loan, saving you money in the long run.
Private lenders, such as banks, often offer flexible repayment terms, including extended loan periods or different payment structures, allowing you to choose an option that aligns with your financial situation.
If you’ve budgeted and still feel like you can’t handle your student loan debt then debt consolidation may be a solution.
Debt consolidation allows you to combine multiple unsecured debts into one payment. An unsecured debt is debt that is not tied to an asset. Credit cards are an example of unsecured debt. A mortgage or car payment is not.
How does this help you afford your student loans? Debt consolidation often offers a lower interest rate than that of a credit card. Lower interest on these bills means you’ll have lower payments, which will allow you to free up money to put towards your student loans.
While you can include student loans as part of debt consolidation it’s unlikely to help much. because student loans already have a lower interest rate than typical loans. Including student loans in in debt consolidation is unlikely to get you a lower interest rate than the one you’re paying now.
Ideally you should consolidate other debts, such as credit cards, to free up money to pay your student loans as they are now. In many provinces, student loans already consolidate themselves, in a manner of speaking. In the provinces of Newfoundland and Labrador, Ontario, New Brunswick and Saskatchewan, federal student loans and provincial one’s merge after you graduate, meaning you’ll have one payment to make instead of two.
In Quebec, Nunavut, The Northwest Territories and Yukon, only federal, provincial/territorial loans are offered so again, this means only making one payment.
This isn’t the case for all provinces. In Alberta, British Columbia, Manitoba, Nova Scotia and Prince Edward Island, federal and provincial loans do not consolidate after you graduate. This means you’ll have to make two separate payments.
“If you’re unsure how to handle your debt you can speak to a Licensed Insolvency Trustee like me for a fact-finding mission on what your options are,” says Ilan Kibel, pointing out that there’s no obligation to sign anything.
A Licensed Insolvency Trustee (LIT) is a professional authorized by the government to help people deal with their financial challenges, including student loan debt. They are experts in debt management and can provide guidance and solutions tailored to your financial situation.
When you speak to an LIT about your student loan debt, they will assess your overall financial picture, including your income, expenses, assets, and debts. Based on this evaluation, they can recommend various strategies to help you manage or reduce your student loan burden.
One option an LIT may suggest is a consumer proposal, which is a formal agreement negotiated between you and your creditors, including the student loan lender. It allows you to repay a portion of your debt over time, often with reduced overall payments.
A consumer proposal can provide relief by lowering your monthly payments to a more manageable level while protecting you from legal actions like wage garnishments.
Bankruptcy is another option that an LIT can assist with, although it's typically considered a last resort.
Student loans cannot be included in a consumer proposal or bankruptcy until seven years after you have left school, according to the Bankruptcy and Insolvency Act.
September 10, 2021
Having student loan debt is common for most who graduate post-secondary. Sometimes paying off that debt is a challenge, though. We look at how to manage student loan debt here.
