As tuition costs continue to rise, students in Canada find themselves borrowing more and more money to fund their studies: total federal student-loan debt is now over $15 billion, a figure that doesn’t include provincial student loans, lines of credit or credit cards, which are estimated to be nearly another $8 billion.1 Across the country students can expect to graduate from post-secondary programs an average of $26,000 in debt.2
If you’re one of the lucky few who have managed to make it through university or college without outside assistance, you probably have at least one friend who is struggling to pay off a hefty loan.
It’s nothing to be ashamed of – accumulating debt is often inevitable and as students we hope that it will be worth the investment in the long run. But it can be tough to pay off the debt after graduation.
I interviewed Natalie W., a recent graduate of Carleton’s Canadian Studies master’s program and no stranger to student debt, for her advice on how to quickly repay a loan.
Q: You recently paid off one of your loans, right?
A: Yes, I am proud to report that I finished paying back my OSAP – a total sum of $18,500 – this past spring. It took several months of penny-pinching to make it happen, but the interest rates were quite high so I made paying it off a priority. It felt amazing to make that final payment!
I still have a student line of credit to pay off and I expect it will take me some time, but I’m doing what I can to speed up the process.
Q: That’s quite an accomplishment! How did you manage to pay off your OSAP just one year after finishing your master’s?
A: Well, there are lots of things that helped me. For starters, I gathered my student loan statements to make sure I knew exactly how much I owed and how much interest I was being charged. It was a little painful at the beginning but I really recommend it. It helped me to prioritize which loan I wanted to tackle first and was a powerful motivator – interest can add up quickly and I wanted to pay as little of it as possible.
I also used the no-interest grace period (the six or eight month window after graduation before you have to start paying back what you borrowed, supposedly while you are looking for work) to make as many payments as possible so that my balance was a bit lower when the interest kicked in.
Q: I imagine that you used a budget to keep you on track? How can students and recent grads use a budget to help them pay off their loan?
A: Absolutely, having a budget really helped me to stay organized. My advice to anyone in debt would be to look at your bank account every day, because knowing exactly how much you have in the bank (or rather how little) will make you less inclined to spend. You’ll also be more likely to notice any small, unwanted fees charged by the bank and mistakes charged to your credit card. Plus it can help you to budget because you’ll always be aware of how much you’re spending on housing, transportation, food, bills, personal care, etc., on a monthly basis.
I also suggest including a repayment goal in your budget. Aim moderately low for the first month to see if you can reach your goal; if you do, re-evaluate and increase the amount slightly. Continue doing this for three or four months and you should get a pretty good sense of how much you can realistically forward towards your loan. During months where you have a bit of extra cash on hand, or if you want to challenge yourself, try to pay back your goal and then some.
Q: How did you make sure you were meeting your repayment goal? Do you have any money-saving strategies?
A: I learned a few great ways to save money while paying back my OSAP. For example, I always bring my lunch to work, which easily saves me up to $50 per week and doesn’t mean any extra work for me. I simply make extra of whatever I’m having for dinner and I pack up the leftovers for the next day. I also do my best to control myself at my neighbourhood coffee shop – if you’re an addict like me, try cutting back by just one day a week, then two, until gradually that morning coffee from Starbucks is an occasional treat instead of a habit. And when you do head to the coffee shop, bring your own reusable mug to shave a few cents off your final cost (Bridgehead here in Ottawa offers a $0.27 discount, and Starbucks and Tim Hortons will give you $0.10 off).
Beyond that I make use of consignment shops on a regular basis as a way to make a bit of extra money outside of work. I take the clothes I don’t wear anymore (that are still in good condition) to a store in my area to see if they’ll sell them for me. Although I don’t make anywhere near what I originally paid, it’s a bit of extra cash for items I don’t really wear anymore. Plus, it’s a great way to de-clutter.
Q: Those are great tips! What other advice can you share with other students who are also trying to pay down their debt?
A: I recommend signing up for a credit card that has a cash-back rewards program (instead of a points or air miles program) so that you get a portion of what you spend back once per year. It’s usually only about 1% but it’s extra money in your pocket that you can put towards your loan or use for other things to minimize your spending. Just be sure that you’re paying your credit card bills on time throughout the year, otherwise the interest you’ll accrue will far outweigh what you’re earning through the rewards program.
Anyone in debt should also talk to their bank about their repayment goals, since an advisor may be able to offer suggestions or make sure you have the best bank account for your needs (e.g. one with a higher interest rate or no minimum balance). If you’re still a student, your bank can also make sure that you’re being charged student rates for debit transactions and cheques, etc.
Lastly, I really recommend two books that taught me about taking control of my finances: The Wealth Chef by Ann Wilson and The Smart Cookies’ Guide to Making More Dough and Getting Out of Debt, which is a great read for women in particular. What I realized after graduating is that we’re not really taught about how to be smart with our money – there’s no class that teaches you how to be financial responsible, even though it’s such an important skill for everyone to have. So I encourage others like myself to take the initiative and learn what they need to know. I liked these books because they’re simple and easy-to-understand, which is perfect for “beginners” who are intimidated by the world of money management like I was a year ago.
The bottom line: paying off a student loan can be difficult, but it doesn’t have to control your life. These tips will help you to start living debt-free, fast… at least until you take out a mortgage to buy your first home.