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Coping with student loan debt

By Ashleigh Viveiros

For most students, debt is simply a part of the post-secondary experience. In fact, a 2004 Statistics Canada survey revealed that nearly half of all college and university undergraduates owed money when they graduated from school.

Most of that debt was in the form of government student loans, with university bachelor degree students owing, on average, $20,000 when they graduated, and college grads owing nearly $13,000.

So if you find yourself owing money after graduation, you are most certainly in good company. But it's a situation you want to get out of as quickly and painlessly as possible. Here are some of the ins and outs of dealing with student loan debt:

Hit it hard, hit it early

Usually, for both your federal and provincial student loans, there's a grace period of six months after you graduate in which you don't have to make any payments on your loan. Your federal loan will accrue interest during this time, but, in some provinces, your provincial loans will remain interest-free. A few provinces even extend the grace period to a full year, as long as you remain in the province during that time. And, even on the federal loans, the money you put onto your loan during this period is applied directly to the principal balance, thereby lowering the accumulating interest.

So what does all this mean? It means you have anywhere from six months to a year to get the principal on your loan down as low as you can. To do this, you're going to want to put as much of your expendable income onto your loan as possible.

The key, then, is to try and have - duh - lots of expendable income in the months immediately following graduation. One possible way to achieve that is to lower your living expenses by joining the legions of students making up the so-called "Boomerang Generation."

Thanks in large part to the debt so many young adults have coming out of post-secondary education, many recent graduates find themselves back in their parents' homes after grad. It's not the ideal situation, sure, but it does provide the potential for saving a heck of a lot of money - money that can then be slapped onto your student loans in large lump sums.

Even if you only return home for, say, the summer, that's still several months in which your living expenses (even if you pay your parents rent) are at an all-time low. So, if you have parents you get along with and who are willing to let you live at home for a while, consider taking advantage of the opportunity while you can. Your finances will thank you and you'll be vindicated for hanging around the nest a little longer when you're able to pay off your student loans far earlier and easier than your living-on-their-own-and-struggling friends.

Whether you're living at home or not after graduation, one thing you shouldn't be doing is letting your newfound full-time paycheque go to your head. Sure, it's tempting to put your first few paycheques towards replacing your old beater of a car or a plane ticket to Europe, but, realistically, you're just digging a deeper hole for yourself.

Unless you really want to spend the rest of your life paying off your student loans, you need to live frugally now more than ever. It might suck for a while, but if you keep putting as much of your extra income onto your student loans as possible, you'll get that debt out of your life sooner.

Facing student loan debt in the long-term

So let's say your student loan debt is far too big for you to pay off in your first year or so out of school. Don't feel too bad - it happens. In fact, the Stats Canada survey showed that only one in five students managed to pay off all their debt in the first two years after grad. The rest, on average, had only paid off about 25 per cent of their student loan debt.

So it looks like you might have to settle in for the long haul. Once your grace period is up, you'll get information from the federal and provincial governments regarding how to pay back your loans. They'll help you set up a payment schedule that will outline how much you have to pay per month and how many months (or, more likely, years) it'll take you to pay off your loans completely.

For some students, that's all you'll need to do. You'll make your monthly payments for the next several years - if you're smart, you'll also continue putting extra lump sums down on the loan to get rid of it sooner - and, eventually, it'll be nothing more than a bad memory. You might even get something good out of it by way of a few tax credits on your income tax forms for the money you spend on loan payments.

But some students find themselves seriously struggling during the first few years out of school. It may seem like there's no way you'll ever be able to pay off your massive loans, but before you run away to some foreign island to avoid paying the government back (which, really, is not a good solution), there are a few things you should know.

First, if you're really having that much trouble paying off your loans, there is help. Both the federal and provincial governments have various programs in place to assist students who really need to get a handle on their loans.

One solution is something called a "Revision of Terms". If you find yourself struggling to make the monthly payments originally set up by the student loans office, you can request that they extend the amount of time it will take you to pay off your loan, which will lower your monthly payments. You can either do this permanently or for the short-term, which might give you the chance to get back on your feet before returning to more normal payments.

Another potential solution is "Interest Relief", which may be available if you are unemployed or stuck in a low-paying job after graduation. If you're granted an interest relief period, during that time you don't have to make any payments on your loan, the government pays the interest on your loan for you, and any payments you do make are applied directly onto your principal. You only have access to a certain number of interest-relief periods (in addition to extended interest relief periods) in your lifetime, though, in some cases, even this may not be enough time for some people.

If you've been out of school for five years or more, used up all your interest relief benefits, and are still in a poor financial situation, you might then be eligible for "Debt Reduction". If you are, the government will reduce the amount of money you owe them - up to a specified maximum - which, of course, lowers your monthly payments.
Finally, if you have some kind of a disability that is making it impossible for you to pay off your loans, you might want to apply for Permanent Disability Benefit, in which the government forgives you your loan, and you're debt-free.

To find out the details of the various repayment assistance programs (which could differ somewhat from the above) in your home province, check out your provincial student loans Web site. For national information, go to www.canlearn.ca.

If all this sounds way too complicated and you think it might be easier to just declare bankruptcy and wash your hands of the matter, think again. Not only will you seriously screw up your credit record, but federal legislation passed in 1998 stated that students can't avoid paying back Canadian Student Loans through bankruptcy for a period of 10 years after graduation. So you're better off just dealing with it now.

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