Category: Student Loans

So you’ve finally graduated, but you haven’t had any luck finding a job. Or your job just doesn’t pay enough that you can afford to start paying off your student loans. So what do you do? If this is your situation, you may want to apply to the government Repayment Assistance Plan.

What is the Repayment Assistance Plan?

The Repayment Assistance Plan (RAP) is a program designed by the government to help you if you can’t afford to pay back your student loans. If you decide to apply for the RAP, you must be able to prove that you can’t afford your monthly student loan payments.

You must re-apply every six months for RAP, but there is no limit on how long you can use the program. RAP has two stages – interest relief and debt reduction.

How does the interest relief stage of the RAP work?

The interest relief stage is available for either 60 months or until you are ten years out of school, whichever comes first. The government will calculate an “affordable payment” based on your income. Your affordable payment will go towards paying down your loan principal and interest if there’s any money left after paying the principal. If your payment isn’t large enough to cover the interest, the government will cover the interest instead.

For example, you have a student loan payment of $400. Of this amount, $100 is interest, and $300 is principal. The government determines you qualify for RAP and calculates your “affordable payment” to be $200. Your monthly payment pays down your loan principal by $200, and the government pays a total of $100 toward the monthly interest amount.

How does the debt reduction stage of the RAP work?

You will proceed to this stage of the RAP after you’ve been part of stage 1 (interest relief) for a minimum of 60 months or you’ve been out of school for ten years, whichever comes first.

During this stage of the RAP program, you either continue to pay an “affordable payment” (as calculated by the government) or no payment at all. This will depend both on your income level and your family size. Your payment will go towards paying down your loan principal and interest (if there is enough money to do so). The government will cover any remaining monthly interest and principal amounts.

For example, your monthly student loan payment is $500. Of this amount, $100 is interest, and $400 is principal. Your affordable payment is $100. Therefore, you would pay $100, and the government would pay $300 per month toward the principal amount of the loan and $100 towards the monthly interest.

The Takeaway

You do have options if you can’t afford your student loans. Be proactive and be aware of all the steps involved in applying for the RAP, so you’re ready if you need to apply for it.

So you’re ready to start paying your student loans back? Great! Make sure you have all the information you need so you don’t miss any crucial deadlines!

What do I do if I have a government student loan?

If you have a Canada Student Loan, you’ll have a six-month grace period before you’ll have to start paying off your student loan.  Any of the following can trigger a grace period to start:

• You graduate from school.
• You decide to take time off from school or leave it completely.
• You transfer from full-time studies to part-time studies.

You don’t have to wait to start paying back your loan. If you graduate with a job waiting, and you have low living expenses (e.g. you can live at home rent-free), then try to start paying back your loan as fast as possible!

You may be able to make adjustments to your loan payments, such as lowering them – but this means that it’ll take longer to pay back your loan. Contact the National Student Loans Service to find out more information about what you owe and how to pay it back.

What do I do if I have a private student loan?

The process for paying back a private student loan will vary depending on who you borrowed money from. Before you graduate from school, you should:

1. Make a list of all the banks or credit unions you borrowed money from.
2. Find out how much you owe, and when you’ll be expected to start paying it back.
3. Make a plan on how you’ll budget so you can start paying your loans back.

Don’t wait for lenders to contact you! It’s important to be proactive when you have loans to pay back so you don’t accidentally miss any payments. The last thing you want to do is to incur fines or penalties on top of your student loans.

What about student loan forgiveness?

Depending on the type of profession you studied for, you may be eligible for some student loan forgiveness – meaning you don’t have to pay back all of your student loans.

Family doctors and nurses working in areas considered “remote” may be eligible to have some or all of their student loans forgiven. A few things to keep in mind:

• Loan forgiveness is only available for outstanding Canada Student Loan balances. If your Canada Student Loan has been converted to a line of credit or private loan, it’s not eligible for loan forgiveness.
• Loan forgiveness only applies to the federal portion of a student loan, not the provincial or territorial portion of a student loan.

Don’t assume you’ll just be eligible for loan forgiveness. You can find more details about how to get started with applying for loan forgiveness here.

The Takeaway

It’s critical to be on top of paying back your student loans. Don’t wait for the government or your private lender to contact you – it’s your responsibility to be aware of what you owe, and when you’ll have to start paying it back!

 

 

Another option for paying for post-secondary education is to take out private loans – that is, loans from a non-government source.

Why would I take out loans from a private source?

There are two main reasons to take out loans from a private source:

1. You don’t receive a government student loan large enough to cover all of your costs. Even if the government agrees to lend you money (at both a federal and a provincial level), there’s no guarantee it’ll be enough to cover all of your costs. If you don’t get enough government loans to cover everything and don’t have any other resources (e.g. an RESP or savings), you may have to get private loans to cover the difference.
2. You don’t qualify for government student loans. Since the government considers things like your income or your parent’s income, they may disqualify you from receiving a loan even if you don’t actually have the resources to pay for school. In this case, private loans may be your only option.

What’s a student line of credit?

When you have a line of credit, you can borrow money from it repeatedly up to a pre-set limit.  So if your line of credit limit is $10,000, you can borrow $3,000, pay it back, and then borrow up to $10,000 again.

Student lines of credit are specifically designed for people seeking post-secondary education. A student can use their line of credit to cover various expenses, including tuition, books, food, and transportation.

With a student line of credit, you only pay interest on the amount of money you withdraw. Keep in mind that the interest rate on a student line of credit may be lower than the rate offered on government student loans. However, you have to pay interest as soon as you borrow money with a student line of credit, whereas with a government student loan, you don’t have to start paying interest until you finish your program or leave school.

When you apply for a student line of credit, you may need someone, such as a parent, to co-sign your application.

What’s a personal loan?

A personal loan can be used for various reasons – to pay for a car, a vacation, and school.  They are offered by most banks and credit unions, and online lenders.

It’s best to get a secured personal loan (secured by your assets or those of your parents) as they come with a lower interest rate than an unsecured loan.

You have to pay back the amount you borrowed on a fixed schedule with a personal loan. And, of course, you’ll have to pay back both the principal and any interest the lender charges.

The Takeaway

If you don’t qualify for government student loans, don’t despair – you can still find ways to pay for post-secondary education! But it’s essential to be clear on when and how you’ll have to pay back your loan or line of credit to make the best funding choice for you.

Welcome to the first part of my four-part series on student loans in Canada. Today I’ll be covering the basics of government student loans. I’ll cover what you can use government student loans for, what variables impact how much of a student loan you can receive, and the basic process of a loan being approved.

What can I use my government student loans to pay for?

There are three main things you can use your federal or provincial student loans to pay for:

• Your tuition. Your tuition is the cost you pay to attend your classes at a university, college, or another learning institute.
• Your textbooks. Depending on the kind of program you’re in, textbooks can run you hundreds of dollars!
• Living expenses. This may mean the cost of residence and a meal plan if you select to live on-campus or rent for an apartment or house, as well as groceries if you select to live off-campus.

What factors determine how much of a government student loan I’m eligible for?

The government takes into account all of the following when assessing the size of your student loan:

1. Income. If you are a student still living with your parents, they’ll consider your parents’ income. If you’re an independent adult, they’ll consider your income and your partner’s income.
2. Attendance. You will be eligible for a larger loan if you plan to attend school full-time instead of part-time.
3. The type of post-secondary education you’re planning to pursue. University tends to be more expensive than college, and programs vary in their costs wildly.
4. Other sources of income. If you have access to funds in an RESP or other savings accounts, you may be eligible for fewer student loans.
5. If you have any dependents. Having dependents can increase the amount of student loans you’re eligible for.
6. Extenuating circumstances, such as a parent being ill and unable to support you financially.

How does the basic loan approval process work?

It works as follows:

1. Collect all your information together.
2. Fill in the necessary paperwork. You should only need to submit one application for federal and provincial loans, but double-check to be sure!
3. If you’re approved for a loan, your money may be deposited in your bank account, or it may go directly to your post-secondary institution.

Government-issued loans do not accumulate interest while you’re a student. With federal loans, you’ll have six months before you have to start paying your loans back. The same grace period usually applies for provincial loans, but check with your loan servicer to be sure.

The Takeaway

It can be a lot of work to apply for a loan! Before starting the process, be sure you’re clear on what you can reasonably expect to receive in student loans.

Your education can be one of the biggest investments you’ll ever make. So whether you’re thinking of going back to get more education or one of your children will be ready to start college or university in the next few years, it’s important to know everything you can about student loans.

Student loans can be great if you can’t afford to pay for school. They can also put you into massive debt if you aren’t careful, though. I’ll cover the following topics:

1. The basics of government student loans.
2. The basics of private student loans and other options for paying for higher education.
3. What you need to know about paying your student loans back.
4. What you need to know if you can’t afford to pay your student loans back.

Being able to pay back your student loans in a timely manner will have a critical impact on your or your child’s overall financial success in life. So it’s very important for you to be clear on exactly what you (or your child!) are agreeing to when they take out student loans!