Five things you should know about paying back student loans
It hadn’t even been a week after my graduation before the National Student Loans Centre (NSLC) kindly let me know it was time to pay up.
The Monday after my graduation, a brown envelope arrived for me in the mail with red letters that said: IMPORTANT. As much as I hate to admit that for the next x amount of years, I’ll be forking out some serious cash, the NSLC is right; repaying your student loans, and any loan for that matter, is important.
Not paying an outstanding loan can be detrimental. Besides paying unnecessary interest, being in debt stops you from achieving true financial freedom. No matter how much money you have saved, if what you owe is more than you have banked, you’re still in the red. Here are a few things to keep in mind when that dreaded time comes.
Interest still accrues during the six-month grace period
I was so relieved to be offered a six-month grace period where monthly payments were not necessary. The relief quickly turned sour when I realized that despite payments being suspended, interest was still accruing. Contact the NSLC to find out how much your interest during the grace period is, and consider staying on top of it by paying a lump sum.
The grace period actually begins when you complete full-time studies
Prior to graduating, I noticed my loan was already in “grace period” status. When I called the NSLC to ask why, they informed me that the grace period actually begins when you are no longer enrolled in full-time studies.
During the last two semesters, I, like many students, had a conflict with my work and internship schedules and course availability, and therefore enrolled in part-time schooling.
Knowing that your grace period starts when your full-time studies are over is something to keep in mind when registering for courses. Depending on your situation, it might be better to enroll in that third course to delay repayment, or you might opt for getting a head start on the payments. Even if you can’t afford to make the full monthly payments, gathering enough to stay on top of the interest (about $1.90 a day for a $22,000 loan), can make a difference in your total repayment amount.
Don’t believe the hype; the Repayment Assistance Plan (RAP) just keeps you in debt for longer
A lot of graduates, while looking for full-time jobs in their field, take advantage of the NSLC’s RAP program. It calculates your monthly income and expenses and allows you to make much smaller payments. While the idea might sound like it provides relief, it ends up costing you more in the long run.
The longer you take to pay off your student loans, the longer you’re in debt, and more importantly, the more you’re spending on interest. It might sound great to make $60 monthly payments instead of $160 payments, but it’s costing you exponentially to maintain the debt, and repaying it is inevitable so you might as well get it done.
Go with floating, not fixed
Repayment gets a little tricky when words like “floating” and “fixed” come into play. But to make it simple, always go with whatever is going to cost you the least money. In this case, the floating interest rate is the way to go. If you’re ever unsure, call an NSLC representative to ask for clarification or speak to a financial advisor at your local bank branch that you trust to ask for a second opinion.
Make as many lump sum payments as possible
My plan was to pay off my loan as aggressively as possible, and considering I was living at home, I was able to do this. I took thousands of dollars out of my savings and paid down my loan. It left me with almost nothing to count on in the event of an emergency but that money would’ve sat there and collected dust (and maybe a few cents in interest monthly) anyway.
Within three months, I have paid off almost $11,000 of my student loan. By living at home, juggling two jobs, putting a majority of my income towards my loan and doubling the pre-authorized payment from the NSLC, I’m more than halfway to being debt-free.
And you can get there too.
Student loans suck. But in reality, they help hundreds of thousands of students afford the opportunity to go on to post-secondary and multiply their earning potential throughout their lifetime. While student loans may seem like a burden, try to look at debt as something that builds character, discipline and financial responsibility.
Remember when you got your acceptance letter? Remember when your school let you know you would be graduating?
Now imagine the feeling you’ll get when the NSLC sends you a letter letting you know your loans are paid in full.