Three things in life are inevitable – death, taxes and student loans. The sad truth is that student loans are presently a part of life in Canada, although tuition expenses are considerably lower and tertiary education is not as expensive as in the United States. Canadians, however, have one major advantage over their southern neighbors, and that is a more supportive federal system. Having said that, make sure you apply for and make use of federal loans to cover your tuition before running to the bank or another private lender. Government loans come with a lower interest rate, and interest does not accumulate with some of them. Banks often have hidden rules, and you usually end up paying a whole lot more than you bargained for, even if you made an effort to read the fine print in your loan agreement.
Many people find it difficult to understand how much they owe. This is done by figuring out the interest that is compounded monthly or annually, whether simple or compound (interest on interest and so on), the loan term and therefore the total cost. If you do not make enough money to make the payments, you can ask if it is possible to extend the term. It will enable you to make smaller payments following your graduation, when your salary is lower. With time, you will (hopefully) start making more money and your payments can increase. Natually, if you opt for an extended payment plan, you will pay more in interest, but a portion of it will be tax-deducible. Unless you are an expert in the field, you may have to resort to the services of a specialist to help you with the numbers.
As another option, you can choose an income-based repayment plan. Thus, your monthly payments will decrease to a certain portion of your income.
If none of these options works for you, you may resort to forbearance or loan deferral. You will not make payments for a certain period of time, as agreed between you and the financial institution. You can repay more urgent debts during this period or find a better paid job. Unemployment and finding a good job are common problems of recent graduates.
If you are struggling with student loan debt, it goes without saying that you should put off other major plans like buying a house or having children. Before you apply for any loan whatsoever, try to find a scholarship in your community, online or at your school of choice.
There are some programs that entail fixed repayment terms – for example 20 years – after which the outstanding debt is forgiven. How generous, you may be thinking. However, if you were paying the lender for 20 years, the financial institution has earned much more than what you borrowed.
Those who work in the public sector can consider some special options. If you are a civil servant, teacher, or hold a public sector job and sign up for a special repayment plan, your debt is waived after a certain term, depending on the plan.
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