Student record

Struggling with student debt? Here’s how to pay off student loans faster

One of the surprising benefits of using a student line of credit is that interest rates tend to be lower than government student loans. Currently, each financial institution applies its own variable prime rate, so it will vary depending on your lender.

3. Create a payment schedule

In my opinion, it is wise to repay your Canada student loan during the non-repayment period, which is the first six months after you finish your studies. Although you are not charged interest, it accrues immediately after you finish your studies. This will help reduce the interest payable on the loan. For a provincial student loan, each province and territory has its own set of rules. You can find more details on the Government of Canada website.

You can determine monthly payments using the Loan Repayment Estimator. By entering the total amount of your student loan, selecting the type of interest (fixed or variable), as well as the number of months you estimate you will need to pay off the loan, the calculator gives you the amounts of the monthly payments and to pay. interest.

For example, suppose you have $25,000 in student debt when you graduate, your loan has an interest rate of 3.2% and a repayment period of 10 years. With the first option, you wait to start making payments six months after you finish your studies. With the second option, on the other hand, if you start making your repayments immediately after the end of your studies.

With the first option, you will pay a total interest of $4,246.01. With the second option, you will pay $3,793.50, which will reduce the interest amount by $452.51. See the table below for a more detailed breakdown.

For an even smarter way, you can make larger lump sum payments, which will further reduce your principal amount and thus reduce your total interest payments.

loan repayment estimator Option 1 Option 2
Total loan amount $25,000 $25,000
Fixed or variable interest rate Floating Floating
Interest rate 3.2% 3.2%
Repayment start date 6 months after leaving school Immediately after finishing school
Number of months to repay the loan 120 120
Monthly payment amount $243.72 $239.95
Total interest payable over the life of the loan $4,246.01 $3,793.50
Total amount to pay $29,246.01 $28,793.50

Want to pay off your student loan faster?

Considering that in Canada, the average student debt is $28,000 for a bachelor’s degree and $15,300 for college graduates, that might seem like a lot of money, especially if you’re looking to land your first full-time job. It’s essential to come up with a repayment plan that suits your comfort level and income.

1. Make lump sum payments

Did you know that you don’t have to wait until you finish school to start repaying your student loans? You can make payments while you are still a student. Payments during this period are also charged directly to the principal of your loan. So, if your program offers a paid internship or co-op program, or if you have a summer job, you can set aside some of your income to make lump sum payments to reduce your loan and reduce mortgage payments. ‘interests.

2. Pay more than the minimum amount

If you can, increasing the amount of your monthly payments will help you get out of debt faster. In addition, the amount you pay above the minimum payment will be used to repay the principal of the loan. Even better, it will help reduce your balance and therefore reduce the amount of interest you will have to pay.