How to Pay Off Your Student Loan

As Toronto mortgage brokers, there is one thing we see all the time that either stops people from getting a mortgage, or at least makes them a little wary of doing so – student loan debt. Today, more than half of college and university graduates leave school with this kind of debt hanging over their heads, thinking that they’ll soon get a career, pay it off, and move on with their life. Why then, are so many people still stuck with that debt 5, 10, even 15 years after they’ve finished school?
Part of it is because of the recent recession. Where it used to be that college grads had a much better chance of finding work than non-college grads, that hasn’t been the case for the last several years. With a sluggish economy and not a lot of jobs to be had, even college grads were finding themselves without a job at all – let alone one that was in their field of study! This has led to many of those grads now not being able to afford to pay back their student loan (and many more are in that boat from even before the recession hit.) Of course, this leads to bigger problems such as sinking further into debt, and not being able to get a mortgage when it’s time to. Yep, it all comes down to student debt. So how do you get out of it when you’re in too deep?
For starters, stop thinking that you’re in too deep. Yes, you may have more debt than you’re truly comfortable with, and you might not be able to see a way out. But there’s always a way out of debt, even when it’s those pesky student loans.
If you haven’t yet defaulted on your student loan (meaning that you haven’t missed any payments) there are tons of options available to you. The first option is the Repayment Assistance Plan. This is a program set up by the federal government specifically for people who are having a hard time repaying their student loans. Under the plan, individuals need to verify their income and their monthly student loan payments are then based on a percentage of that income – and that percentage can be no more than 20%. This puts a person’s student loan payments in proportion with the amount of income they’re making. Under this Repayment plan, a person who can’t afford to make any payments won’t be required to until their income starts to show that they are comfortably able to.
The No-Interest program is another program that is available to help those that are having problems paying off their student loan. With this program, students can apply right after graduation to prevent interest from accruing on their student loan. This keeps the monthly payment down, because the student is then only required to pay the principle amount of the loan, without additional fees and charges that they can’t afford.
Lastly, if you’ve been out of school for some time (7 years to be exact) and you don’t think you’ll ever pay off the loan, declaring bankruptcy might help. Now, go into this one with a lot of caution. We’re not in the habit of recommending people declare bankruptcy, as it can be a financial ruin that stays with you much longer than you think. However, there are some misconceptions about bankruptcy in Canada, and one is that once a student loan is on your credit report, it will never come off – not even after filing bankruptcy. While that’s generally true, bankruptcy will clear your student loan debt if you’ve been out of school for 7 years.
If you’re having problems paying off your student loan, and are interested in either the Repayment Assistance Plan or the Interest-Free program, contact the National Student Loan Services Centre. They’ll be able to direct you to the right people to speak to, and might even be able to offer more suggestions on how to pay off your student loan. So that in the future, things like a mortgage won’t be out of your reach.