I created this list to help students better understand student loans and the repayment of them. This list captures some of the tidbits of information I learned after getting my student loans and graduating with a lot of debt. If even one piece of this information can help one person in making a better decision with their financial future, I will count that as success.
I must admit, even though this information was available to me when I was in school, it was not in my mental radar. I would even say that this is probably the case for many young students. When you’re 18 or 19 years old and you’re handed a whack load of money for the first time in your life, with no verbal instruction or guidance on how to manage it, bad things can happen.
These tips relate to Canadian government issued student loans. I also want to point out that these tips are based on my experience and my time in school.
- The amount of government issued student loan you receive will be affected by your parent’s income until you turn 21. After this, your parent’s income will have not affect your student loan amount directly.
- Full time students do not have any interest accruing on their loans while they are in school. Part time students do have interest accruing on their loans while they are in school.
- Government issued student loans are not bankruptable in most cases, meaning they will survive a bankruptcy.
- Government issued student loans do not transfer to your spouse upon death. They die when you die.
- Depending on the amount borrowed, government issued student loans (like any other debt) can significantly affect your ability to borrow in the future.
- Upon graduation, you are given 6 months before you must begin repaying your loan, during this time interest is being calculated against the principal of your debt.
- Student loan forgiveness is difficult to obtain unless one can prove ‘hardship’ for an extended period of time.
- A consolidation agreement is sent to you a month or two before you must begin making your student loan repayments for the first time (after graduation). This agreement spells out the terms of your loan repayment and provides you with the opportunity to:
- Decide whether or not you want to make one lump-sum payment to pay off the 6 months of interest accrued while on grace period, or add it onto your principal
- Have your loan set to variable or fixed interest rate. The default is variable
- Reduce or extend the length of your repayment (standard time is 10 years in most provinces)
- And other details
- Repayment assistance provides temporary financial relief for those that may not be able to make their student loan repayments for a time. During repayment assistance, the government may pay for some of the interest (and principal- but this is rare) on your loan for your behalf.
- One Repayment assistance period lasts for 6 months at a time. If additional assistance is needed, one must reapply for repayment assistance again and provide proper documents to prove lack of sufficient income.
- Repayment assistance consists of two parts (Stage 1 & 2)
- Stage 1 allows individuals to apply for this assistance 10 times (for a total of 60 months), at this time you government will normally cover a part of the interest on your student loan interest while requiring you to pay back the rest of the interest along with the principal
- Stage 2 occurs after 10 years of caring the student loan and after completing stage 1. At this time the Government of Canada will more than likely assist in helping the student cover some of the principal & the interest on the student loan.
- I should mention that even though the repayment assistance program is great, it’s important for graduates to try and pay off their loans in a timely manner because in order to qualify for this assistance your income needs to be very low during these 10-15 years after school. Below is a table showing the minimum gross income (before taxes) one would need to make based on family size in order to not pay a cent towards their student loans after graduation.
Number of Family Members
Gross Monthly Family Income
1 $1,684 2 $2,631 3 $3,399 4 $4,009 5 or more $4,569
- In calculating repayment assistance amount, the government looks at family size and your gross monthly income from the month before you apply for assistance. Household expenses are not factored into the equation.
- Family income includes your income and your spouses, so you if your partner makes past the income threshold, you may be not be approved for repayment assistance.
- If you are looking to attend a school outside of Canada (this includes the United States), you will only receive the federal portion of the student loan and not the provincial portion. This is 60% of what you would receive if you went to an accredited school within Canada.
- When you begin to repay your student loans back, the interest you pay on government issued student loans can be used to reduce your taxes, however, the interest you pay on a student line of credit issued directly to you by a bank through a student line of credit cannot be used to reduce your taxes. This is something to consider if you are thinking about applying for a personal loan from the bank (or line of credit) and using those proceeds to pay off the student loan debt. Some additional questions to ask yourself:
- Will I always have the money to make the minimum payments that the bank will require me to pay one this loan. Keep in mind, banks don’t have a repayment assistance program like the government in the event you can’t make payments
- Is the interest rate the bank is offering significantly lower than the interest rate of the student loan that it makes sense to pay it off by taking it out a loan.
- Will I be satisfied with losing the tax advantage of writing off the interest I paid on my student loan come tax time (these expenses can be carried forward and used up to 5 years from the year they were paid)
- Individuals that choose to leave Canada while repaying their student loans do not qualify for repayment assistance. However, they are provided with the option of making interest only payments towards their loan (making interest only payment s is a horrible idea and I would strongly advice against it).
- Individuals that move outside of Canada while repaying their student loans do not qualify for repayment assistance.
- If your loan is delinquent or in default, you may not be eligible for repayment assistance. Delinquency and default are very different. Delinquency essentially means, you have missed making a payment or more towards your student loan debt. This affects your credit score, but the debt is not sent to collections. Default is when you are 270 days or more than 9 months in missed payments towards your student loans. At this point you are still liable for the debt, but it is more than likely been sent to collections.
- If you have ever been in default with your student loans, you will not be able to apply for a government issued student loan in the future. If you were in delinquent with your student loan, you may be able to but after proving that you are in good financial standing. Even with this they may still deny you a loan in the future.
- When a student loan is defaulted, it shows up as a public record item on your credit report. Public record items are not good, and hurt your credit score. In addition to this, public record items can be seen by all lenders that pull up your report.
- Even if someone else pays off your student loans for you, you are the only one that can claim the interest paid on the student loan when filing your taxes (assuming it was a government issued student loan and not a student line of credit from the bank).
- You can transfer some tuition credit to your parents when filing your taxes as a student. Tuition credits, like other credit helps to reduce the tax one owes.
- You can carry forward the interest expense you paid on your government issued student loans up to 5 years, at which point they expire. Make sure you plan your taxes wisely to use them before they expire.
- If you are out of school for longer than 6 months, you will be required to start paying back your student loans.
- Remember, that student loans are monies you have to pay back in the near future. Four years goes by quickly and that $20k, $50k, $80, $100k+ loan will become very real a few months before you graduate. Don’t overspend the student loan amount extended to you because your future self will regret it.
Some of the rules and policies may have changed since I was in school so it is important that you seek professional advice and guidance.