Haroon Khan, 31, lives in Calgary and works for a property management company. He graduated from the University of Toronto in 2008 with a major in history and a double minor in sociology and environmental science. "I felt so relieved when I graduated; it was always something I truly wanted to accomplish, but how I felt about my debt was a different story."
When Haroon graduated he owed almost $40,000 in student loans, all of which was received through the Ontario Student Assistance Program (OSAP). Haroon's student debt is higher than usual. In Canada, the average university student that graduates with a bachelor's degree owes about $16,500.
In a previous article I outlined the various sources of financing available. In Quebec, Nunavut and the Northwest Territories, student loans from the federal government are not available; all loans are distributed by the province or territory. Ontario, Saskatchewan, British Columbia, Newfoundland and Labrador and New Brunswick offer a blend of provincial and federal assistance, so although you sign one consolidated agreement, money is distributed by both channels. If you receive a loan from any of these provinces, all of your repayments will go through the National Student Loans Service Centre (NSLSC).
Manitoba, Nova Scotia, Prince Edward Island and Alberta are set up so that you actually pay back two separate loans -- one to the province and one to the NSLSC. This structure is more of a hassle for students because they have to deal with two organizations and complete each step twice -- and the steps are undoubtedly not the same.
Once you graduate the NSLSC will send you a Consolidated Canada Student Loan Agreement that outlines the total loan amount, the interest rate, the payment schedule, and the amortization period. And if you're dealing with two loan providers, then your province or territory will send you one as well.
There is no point in trying to cheat the system and claim that you did not receive a contract in the mail because if the government doesn't receive your signed contract, it will automatically start withdrawing money from your bank account after a six-month grace period.
The grace period is granted to all students upon graduation and during this time no payments are required; however, interest does accumulate. Haroon signed his agreement and once his grace period was over he started paying $580 a month. "But that was too high for me, so I re-negotiated, and they reduced it to payments of $356, which I am still paying now."
This is common; Haroon got a revision of terms. Basically, if you can't pay the amount outlined in your Consolidated Loan Agreement, then a revision of terms can lower your monthly amount or extend the amount of years on your payment plan; you can contact the NSLSC to see if you apply.
A revision of terms can also be used in situations where you are able to increase your monthly payments or pay down a large sum on your loan. For example, if you get a promotion at work and want to bump up your $520 monthly payment to $710, or if you get a $5,000 bonus and want to put it all toward your loan, then contact the NSLSC to see what can be done.
These programs are flexible because the NSLSC wants your loan paid off quickly, and you should want the same thing because the faster you pay down your principal then the less interest you will incur over the lifetime of the loan.
"It's the same as any loan, the sooner you pay it off the better," says Tom Lumsden, director of education financing at RBC.
Now, if you're in a difficult financial situation, the government does recognize extenuating circumstances. For example, under the Repayment Assistance Plan, your student loan repayment term will max out at 15 years, all your money is applied to the loan principal first with the government covering the rest of the payment, and you may be waived of all responsibility to pay the loan back until your income increases.
The eligibility on this plan is vague, as it is based on individual circumstance -- you have to prove that you are unable to meet the requirements on your current payment plan. And once you're accepted in to the Repayment Assistance Plan, its continuation is not automatic; you have to re-apply every six months.
Currently, Haroon's debt sits at $30,000. "I wish it was lower. My advice is that if you get a student loan then just use it for school -- tuition is only $5,000, but people get sucked into thinking, 'Oh I'm getting $8,000 - $9,000' and then use it for something else."
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