How to Pay Off Student Debt After Starting Your First Job

A new report from The Conference Board of Canada seems to dispel the stereotype of the starving millennial graduate, but even with a respectable starting salary, student debt remains a concern. The Canadian research organization found the starting salary for a new grad generally ranges from $45- to $69-thousand, with specialized fields like geology and engineering occupying the upper end of the income spectrum.

While some graduates can earn very respectable salaries from the get-go, it’s worth noting that the youth unemployment rate currently sits at 11.7 per cent, as many struggle to find jobs upon graduation. The Conference Board of Canada also notes that one in five young Canadians are underemployed or working part-time. Meanwhile, Canadian tuition fees have risen 40 per cent in the past 10 years, and students are graduating with an average student debt load of nearly $27,000.

Judging by these figures, it can be difficult for a recent grad to pay off a student debt load that’s anywhere from one-third up to more than half of their starting salary—it is certainly not realistic to pay off this student debt in just a year or two. However, while the government does offer a six-month non-repayment period, and defers payments until you earn at least $25,000, you will still accumulate interest on your debt during that time. That’s why, if you do have a job lined up right after school, it’s best to start paying off your student debt right away. Here’s how to get started.

Start by building a budget

In order to know how much student debt you can afford to repay each month, start by tracking your monthly income and all of your expenses. You may or may not have had a budget while you were in university. If not, now’s the time to create one. Use an online budget calculator to determine your take-home pay, and everything you spend money on each month—food, housing, insurance, transportation, debt, entertainment and other personal expenses. The goal is to spend less than you earn; any money left over can go toward paying off your student debt.

Use a debt calculator to create student loan repayment goals

Do you want to pay off all your student loans in five years? A debt calculator can show you how much you will need to put aside each month to do so. A student debt calculator allows you to input your loan amount, yearly interest rate, type of loan (fixed or variable rate) and the payback period to show how much you would have to repay each month. For instance, if you were looking to pay off the average student debt load of $27,000 in five years (and if, hypothetically speaking, all of your student loans were government-sponsored), you would have to repay roughly $510 a month over that time. Would you be able to make room for that amount in your budget? If not, you’ll want to readjust your repayment goals accordingly.

Set up automated payments to pay off student debt first

Once you have determined the amount that you will put toward your student loans each month, you can then set up an automated bill payment using online banking. Each month, that money will come out of your account and go toward paying off your student debt. It’s probably best to do this right after payday (say, the 15th of the month) so that the student loan payment comes out before you can spend it otherwise.

While the thought of putting $500 a month toward student debt for five years can seem intimidating, it’s worth noting that the average student debt load does not necessarily reflect the amount of debt for every recent graduate across the country. You may end up owing less than that upon graduation. Some grads could also owe more. However, if we’re strictly speaking about averages, the average starting salary for a Bachelor’s degree holder was $54,295, as per the Conference Board study. At that level, a $500 monthly student debt repayment would take up around 15 per cent of your take-home pay, which is likely a reasonable figure—provided that you aren’t starting your career in an unaffordable rental market like Vancouver.