The cost of education in Canada is rising. Tuition for Canadian full-time undergraduate students, on average, increased to $6,838 in 2018-19, reflecting an increase of 3.3% from the previous academic year.1
It shouldn’t come as a surprise that student debt has become a real challenge for many Canadians–whether that’s graduates or parents who’ve picked up the tab for their child’s education.
According to a recent survey of about 15,000 Canadian graduates, the average debt load– among the 50% of students who finished with debt–was nearly $28,000. For new graduates entering today’s job market, student loan payments can be a real burden. Having to pay off a few hundred dollars each month for a decade or so can negatively impact graduates’ lives, forcing them to delay major life events, such as buying a home or starting a family.
Take a look at seven key tips for paying off that student loan faster:
1. Make payments while attending school
While student loans don’t require payments on the principal while you are in school, there’s nothing stopping you from beginning to pay off that debt while you’re still a student. Any payments you make while in school will go toward the principal of your loan, which will reduce the total amount you owe. This means less interest to pay in the long run. Consider a part-time job to help you make early payments. You’ll be very glad you did. If you already have a part-time job and get a raise, increasing your loan payment by the raise amount will also be effective.
2. Increase your monthly payments
This is one of the easiest ways to reduce your debt. Any amount you pay over and above your monthly minimum will go directly toward the principal of your loan. This decreases your total loan amount, which reduces the amount of interest you’ll pay. Even an additional $10 a month can make a surprising difference over time. To ensure you make the additional payment on a regular basis, consider including the extra amount in your monthly payment.
3. Put that tax refund to good use
If you’re out of school and working–or even working during the summer–chances are you might be getting a tax refund from the Canada Revenue Agency (CRA). While it might be tempting to head off to Cuba with your windfall, you could make a dent in your student loan by applying your refund toward your loan. Even if you don’t want to allocate your entire tax refund, simply putting a portion towards your student loan is also wise, especially if you’re entitled to a refund each year.
4. Start budgeting and cut spending
While the word “budget” may cause some to feel nervous, it’s never a bad idea to understand where all your money goes each month. Start tracking your discretionary spending; you might be surprised how much money you’re spending on lattes, restaurants–or even just fast food. Think about diverting at least some of those funds to your loans.
5. Consider consolidating your debt
If you had to borrow from multiple sources to finance your schooling, it might be worth investigating if you can save money by refinancing and consolidating your debt. The goal of refinancing is to decrease the rate of interest you’re paying, so that more of your payments go toward paying down your principal.
Having one payment might also help you stay focused on eliminating your debt. Speak with a financial advisor about options available for refinancing and consolidating your debt.
6. Make payments bi-weekly
Another popular strategy–often used by homeowners for their mortgage–is to make a payment every two weeks, as opposed to one monthly payment. By doing so, you’ll make a full extra payment over the year. The convenience and benefit of this strategy is that if you receive a paycheck bi-weekly, you won’t even miss paying the extra amount.
7. Get creative
If paying off your student loan quickly is really important to you, think about other creative ways to generate cash. Whether it’s holding a garage sale, selling that vintage guitar you no longer play or just taking on the occasional odd job, you’d be surprised how it all adds up to you being debt-free sooner.
While paying off student loans may feel daunting, considering the above tips and speaking with an advisor about potential repayment strategies may help get you out of debt faster.
1 Statistics Canada (2018).
2 Canadian University Survey Consortium, 2018
Graduating Student Survey Master Report, June 2018.