How to Eliminate Your Student Debt

For many young Canadians who attended college or university, the years spent on campus are some of the best memories of their lives. Now while you may look back on your college days with fondness, what is a less appealing reality is the student debt that follows you well after graduation. According to a 2020-2021 survey, the average Canadian graduate owed nearly $15,000 in student loans, highlighting the high price of post-secondary education 1 . No matter what stage of life you are in – a current student, a new graduate, or an employee in the workforce – those years of financial debt accumulated to achieve your educational dreams can haunt you for years to come.

We know tackling your student debt can be daunting, but don’t fret; it’s not all doom and gloom. By implementing the right financial strategies, you can get the student-debt monkey off your back and put yourself on the road to a brighter financial future.

Here are a few tips for eliminating your student financial debt:

Familiarize yourself with your student debt

Do you know the full story of your student loan? No? Well, you’re not alone. For many Canadians, fully comprehending their student loan details can feel like going on a blind date without scoping out your date on social media or Google first – simply, an unknown mystery. While you may think being unfamiliar with the particulars of your loan is no big deal, the truth is staying in the dark could set you up for a financial pitfall when it comes time to pay up. For a quick cheat sheet on student loans, the key elements are the loan principal, loan term, interest, and grace period.

• Loan principal: The total amount that you borrow for your loan.
• Loan term: The duration of your loan from when you take it out to the date you fully pay it off.
• Interest: The interest rate a lender charges you for the privilege of borrowing money.

Note – Effective April 1st, 2023, the Government of Canada has permanently eliminated the accumulation of interest on their Canada Student Loans (recipients will still need to pay any interest that may have accrued on their loan before April 1st, 2023). Loans from other financial institutions are still subject to interest charges and payments.

• Grace period: The time between graduating from a post-secondary institution and when you must start paying back your student loan to your loan provider. Students with a government-issued Canada Student Loan have a six-month grace period. During this period, loan recipients are not required to make payments toward their loan.
• For students with a loan from other financial institutions, the grace period and terms vary from institution to institution, and interest may or may not be charged during this time. For Canada’s credit unions, loan recipients can receive a grace period ranging from 6 months to up to 2 years! For instance, a student loan through Affinity Credit Union offers a grace period of up to 24 months. Whichever option you choose, it is important to select the institution and financing option that best fits your financial needs.

The bottom line is whether you received your student loan from the government or took out a line of credit with a financial institution, it’s important to contact the proper institution to learn the specifics of your loan contract. By familiarizing yourself with the fundamentals of your student loan, you’ll attain a holistic picture of where your debt is coming from, what you owe, and whom you need to pay this balance off to come repayment time. Ultimately, having this knowledge will provide you with an understanding of the expectations of your loan and help you avoid unpleasant surprises when you repay your loan.

Set a realistic timeframe for your student loan repayment goal

As the saying goes, you can’t hit a target if you don’t aim for it! Setting realistic financial goals is a fantastic way to help you stay on track with your monthly loan payments and get you one step closer to being free of your student debt for good. Start by calculating all your sources of income and living expenses to obtain a holistic picture of your financial holdings. Once you’ve established a better understanding of your income, it’s time to create a realistic goal for your student debt repayment plan – including calculating the monthly payments you can commit to reaching this goal. Consider tracking your student debt repayment goal and each repayment date in a “money diary” or spreadsheet to watch and see your student debt decrease after each payment. Seeing your loan amount lower after each payment can help you stay motivated and ensure you meet your repayment goal.

Setting financial goals is pivotal to getting yourself on the path to a brighter financial future. But don’t take our word for it – hear it from an expert! Mareike Neuhaus, a Financial Planner at Affinity Credit Union, shares her perspective on the value of incorporating your student loan payments into your financial budget:

“Whether you are a recent graduate looking to pay off a student loan, first-time home buyer, or a new parent, the key to financial success is always having a workable budget.”

Start paying against the principal ASAP

If you can afford to start paying off your student loan after graduation (or even before), pull the trigger. That’s because while you may have a six-month grace period before you have to start repaying your student loan, the truth is, for many loan providers you will still be accumulating interest over this time. Simply put, the amount you owe when you finish school could be higher when your grace period ends if you aren’t proactive. Starting to chip away at your debt during your grace period will allow you to significantly lower the total amount you pay over your loan’s lifetime and reduce the interest you take on. Whether it’s $50 or $500 a month, these financial payments –however big or small – will make a significant difference in crossing your student loan off your debt list.

Boost your student loan payments with a little extra dough

With today’s rising cost of living, more people are picking up a side hustle to add extra cash to their wallets. Why not put this money to clever use by tossing that extra cash toward your student loan? With the help of a side gig, you can obtain an additional source of income to help you tackle any accrued interest on your student loan or even to help pay off your principal amount. From being an Uber driver to taking your love of dogs to the next level and becoming the neighbourhood dog walker, picking up a side hustle can help you monetize a hobby you enjoy and earn more dollars to attack your student debt with confidence. While working a second job can be tough, the greatest reward is when your hard work and dedication pays off, and you achieve the ultimate financial goal – being debt free!

We know how powerful extra payments towards your debt can be, but don’t take our word for it – hear it from an expert! Once again, Affinity Credit Union’s very own Mareike Neuhaus, offers helpful insights on the value of making bonus payments towards your student loan debt:

“Every non-scheduled repayment you make against your loan will reduce your interest expense and will get you closer to becoming student debt-free so that you can shift your focus to other important financial goals, such as purchasing your first home or starting a family.”

If a side hustle isn’t for you, there are other ways to get funds to make those extra payments on your loan. Did you get some birthday cash from your grandparents, receive a tax refund from the government, or win big at your local hockey 50/50 raffle? Why not use a portion of these funds to make an extra payment toward your student loan? By doing so, you’ll be able to speed up your repayment efforts and get back to focusing your efforts on the other important financial goals you’d like to achieve. Now that’s a win-win!

Avoid the student debt blues with the help of a credit union… become a credit union member

Loan – the four-letter word many post-secondary students in Canada know. Whether you are a recent graduate or have been working to repay your debt for a while – student debt can be a heavy weight to bear on your shoulders. But the good news for young Canadians is that you don’t have to work through this debt alone. Credit unions are great financial partners to help you repay your loan and erase your student debt for good. Not yet a credit union member? Find a credit union near you, here.