Education is a lifelong investment with immeasurable benefits to your overall wellbeing. Unfortunately, it can come with a mountain of debt that can seriously impact your life for many years after graduation. The cost/benefit of your studies is very different from person-to-person and while that decision is up to you, make sure you fully understand the financial implications of a student loan and incorporate that into your decision-making process.
To get you started, here are 10 fast facts that student loan holders or any students/parents now considering one need to know.
1. You have to start paying back your loan within six months of completing your studies and the maximum term of the loan is 174 months (14.5 years).
2. The default option is variable interest at the bank prime rate (currently 2.70%), or you can change to a fixed interest rate at prime + 2% (be careful — you cannot change back to variable!).
3. The average Canadian student loan for a 2-year college is $15,300 and $28,000 for a 4-year degree.
4. Paying off the average Canadian student loan of $28,000 (4-year degree) at current interest rates (fixed rate option) would require a payment of $635 monthly for 5 years.
5. If you declare bankruptcy within 7 years of graduation, your student loans are not forgiven.
6. The loans terms are quite flexible — you can choose fixed or variable interest, select the term length (maximum 174 months), choose payment frequency, and make lump-sum payments at any time.
7. Missing payments for nine consecutive months will result in your loans being sent to the CRA for collection and your credit rating will be heavily impacted.
8. You receive an annual tax credit (deduction) for your loan interest.
9. Due to the pandemic, student loans will not accumulate interest for the period from April 2021 to March 2023, although you must continue to make regular payments during this time.
10. Student debt forgiveness is a political topic, but aside from the Repayment Assistance Plan and a few other highly restricted options, there are currently no loan forgiveness programs for Canada Student Loans.
There are plenty more details to look into if you are considering a student loan, would like to pay back your existing student loan more quickly, or struggle to make your loan payments.
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