The Best Way to Pay Back Your Student Loan. Get It Over With Quick (Relatively), Pay Less Interest, Never Look Back!
Student loans are a fact of life for many. Most students, or their families, call on some form of financial assistance when college or university time rolls around. It’s no secret that even with the amazing and comparatively affordable postsecondary education system we have in Canada, the costs can still add up. But paying that money back doesn’t have to take the next 25 years of your life. It doesn’t even have to take the next 10. Maybe even the next five!
Loan repayment strategy: dominate your debt
According to Statistics Canada’s most recent data, the average student debt in Canada, for those who obtained a bachelor’s degree, is $28,000.
To pay off your $28,000 debt in five years, you would have to come up with about $586 every month. Here come some number things. Most of that $586 goes to the principal (the actual money you borrowed), but some of it goes toward interest (the money you pay to your lender, which is rolled into your monthly payment). In the case of an average debt ($28,000), every month you would pay $138 in interest. So, of the $586 you would pay every month, only $448 of that goes toward paying your actual loan.
Over a single year, you will pay $1,657 in interest. If you draw out your loan repayment over 10 or more years, you’re paying at least $16,000 in interest.
One of the best things you can do for your financial future after graduating is paying off the money you borrowed during your education. Don’t throw away money on interest.
*Note – OSAP loans don’t charge interest for the first six months after you graduate. If you don’t get a job immediately when you graduate, don’t worry. You have some time!
So how do I do it?
Smart move #1 – Start paying now
You can start paying off your loan as soon as you receive it. And, in case you missed the note above, you don’t pay interest until six months after you graduate. It’s not a bad idea to start paying back your loan while you’re studying. If you pick up a part-time job and find you have extra money at the end of every month, put it into your loan.
Lowering the principal lowers the interest, so if you don’t have the whole loan paid off before you have to start paying interest, you’ll at least reduce the interest you do have to pay.
Smart move #2 – Don’t pay the minimum
Rather than just paying the minimum, choose a timeframe (like five years) and figure out how much each payment needs to be so you can have the debt paid off in that time. Here is a handy tool to help you figure out that number.
If you have a job right out of school, figure out how much of your paycheque you can realistically dedicate to loan repayment and start paying it down by that much.
Smart move #3 – Use your tax refund
Most students get money back come tax season. That money can knock off a good chunk of your debt and shorten your repayment timeline (so you pay less overall interest). It might be painful to put that money into your debt rather than a sweet trip to Belize, but it’s a temporary pain. When your friends are still paying off their loans (and the interest that keeps accumulating) and you aren’t, Belize will still be there.
Smart move #4 – Prioritize
Not all loans are created equal. If you have loans from more than one source, prioritize those with higher interest.
If you haven’t already figured it out, interest is your enemy. You’ll waste lots of money on interest through the rest of your life, so do yourself a favour and tackle the high-interest loans before others.
Smart move #5 – Save more so you can pay more
There are lots of ways to cut your costs. How can you save more?
- How many streaming services do you really need?
- Can you move home or live with a roommate (or two, or three) for a while?
- Can you cook more meals at home, and still keep your active social life?
- Is there a more affordable grocery store to shop at?
- Do you really need a gym membership, or can you stay fit without it?
There are so many ways you spend money in a month. Record it all, then see what you can temporarily cut and redirect into your loan.
Applying for a loan now? You’re doing the smart thing by thinking about repayment early
You’re on the right track, thinking about loan repayment early in your postsecondary career. Give yourself the best start by following the tips above, and contact the team at Lakehead-Georgian any time you have questions about financial aid, admissions, or being awesome.