5 tips for curbing student debt in 2018
So you did the thing! You went through a zillion gruelling semesters of coughing, tired classmates and made it out on the other side with a crispy (or rolled) piece of parchment; congrats. You’ve also been handed the keys to your student loan debt that begins repayment as soon as six months after graduation or even sooner if you were financed through a private institution.
The National Student Loan Centre says it takes students an average of nine years to pay off their student loans.
When 900 students were polled in 2015 about their financial fears almost 50% cited concern for covering costs of post-secondary education or paying back school loans once they graduated. In addition, over 60% of parents can’t afford to send their kids to school and often dip into retirement savings or incur more debt as a result.
If your loan is from a private financial institution like a bank or private lender, there is less that you can do about your debt level besides paying it off as soon as possible. Interest on bank loans start accumulating immediately. However, you may be able to renegotiate interest rates, get interest relief or lengthen your loan terms in order to lower your required monthly payments.
We’ve looked at some ways to deal with that debt --which averages around 30k for students today-- once you’ve been ushered into the real world of financial consequence. Read some of the tips below.
1. Being debt-conscious while you're in school
It’s so important to keep a budget, especially when you look at the rising costs of transportation, rent and food. Things are more expensive in big cities, including tuition and housing. If you’re willing to go to school somewhere that has cheaper resources, do it.
You also need to educate yourself about financial responsibility. Unfortunately, high school doesn’t really teach you much about debt, credit cards or financial planning. You need to understand that a student loan does not mean you’re getting free money. Apply for as many scholarships, bursaries or grants as possible; that is the free money! Use it to pay off your student loan. Provincial loan programs will automatically consider you for certain grants if you're in their network.
2. Getting a JOB
A little side hustle on the weekends and during the summer will allow you to put some money toward the principal of your student loan during the school year. Since provincially funded loans don't make you pay until you're finished your studies, starting payment early will reduce the amount you have to pay when they come knocking. You'll be reducing your total debt and your resulting monthly payments after you graduate. After you graduate, you have another 6 month grace period that you can use to pay off the principal of your loan as well.
3. Applying for repayment assistance
Each province has their own repayment assistance program (RAP). Through this provincial mechanism, they will minimize or eliminate your monthly payments once they start asking for their money back. If you make below a certain threshold (recently increased to $25,000 in Ontario), they will freeze your payments completely for a time until you can get some of your finances together.
This will only last for a period of around six months as it is temporary relief, and you must physically ask and/or apply for it. After this six month grace period, you must re-start normal repayment again or reapply for RAP.
4. Increasing monthly payments
I’m sure you know by now, that only paying the minimum requirement on your loans or credit cards does nothing to shift the principal, that is the hard amount that you owe; you’ll only be paying the interest off.
The more you can manage to pay per month, the less time you’ll be in debt. Debt analysts suggest students use “found money” – like birthday gifts and tax refunds – to make a lump sum payment against their student loans. Budgets, they also recommend, should contain a section for loan repayment.
5. Living frugally and creating a budget
A budget doesn't make itself. You have to sit down, account for all your living costs and bills and chart out what you can afford to allocate toward student loan repayment each and every month. This will let you see how much time it will take you to pay off your debt if you save (insert your income here) amount of money.
Some quick ways to save money:
- Avoid ATMs with fees.
- Put your weekly or monthly allowance in a cash jar so you can visualize how much is left; one for groceries, transit, entertainment, etc.
- Compare home and auto insurances for better rates that help you save
- Find the most affordable internet and phone plans by comparing across providers
- BRING YOUR LUNCH
- Use a mobile budgeting app so you can follow and curb your spending on the go
You can plug in your own numbers, but here's an example with 30k of student debt repaid over five years (60 months) if you make $35,000 per year:
$30,000 debt / 60 months = $500 per month. You're going to want to slash that to $250 per month, leaving you with $3,000 to pay in a lump sum per year (you could use your tax refund for this, or spread it out in $500-$1000 payments throughout the year). With this calculation, you'll be paying $6,000 off your debt per year. Given your salary, you'd be paying about 17% to 18% of your income toward your student loan debt. Analysts recommend 15% of your net income going towards debt at the most, but this is a fast-track scenario. There is no consideration for "found money" or secondary jobs in this calculation, which you may consider using toward your debt to shorten the repayment period. It seems like a lot, but it's just something to think about!