Expert advice on managing expenses, avoiding debt, and repaying your student loans from Credit Canada.

Everyone has memories from their college or university days, but students like you will have very different ones from most others. My memory of missing the last day of classes due to a snowstorm is nothing compared to navigating through COVID today. Most students are dealing with virtual learning on top of COVID budgeting and, of course, student loans.

How much does post-secondary education cost?

Post-secondary education is expensive and the costs continue to rise. In 2018 the average tuition in Canada was $6,838. As of 2018-2019, the average student loan balance at the time of leaving school was $13,367.

The positive news is that student loans are considered to be "good" debt, as it's expected that you will earn a higher income because of your education. Plus, student loans have lower interest rates than other forms of debt, like credit cards and car loans. These are considered "bad" forms of debt as they have higher interest rates, and what you purchase doesn't usually appreciate in value. So, what can you do to reduce your reliance on student loans? Let's find out!

10 tips on how to manage expenses and avoid debt as a student

  • Live mindfully. You need to make wise financial choices as a student. By living carefully (some call it frugally), you can avoid unnecessary debt and save some money for your future.
  • Create a monthly budget. This will help you see how much money's coming in and how much is going out. Decision-making's easier if you have a clear picture of your financial situation. You'll be better able to decide what you spend your money on, and what you don't. Check out our free Budget Planner + Expense Tracker to help you build a budget.
  • Identify needs versus wants. Do you need to buy a coffee and bagel every day? Do you need the latest iPhone? In most cases, you don't. If you love splurging on coffees and treats, set a monthly budget, and buy a gift card from your favourite shop for that amount. This will help you avoid overspending.
  • Adjust your budget regularly. COVID has changed how we spend our money. Some expenses have increased (such as food) while others have decreased (like entertainment). Having a budget can help you adjust your spending, and show you the money you can save for your future goals.
  • Work while you're in school. The more you can earn, the less you'll need to borrow. You can seek summer employment and even part-time work during the school year. It's important not to jeopardize your education by working too much during the year. Also, try to save extra funds from your job instead of spending on unnecessary expenses. Yes, school can be stressful, but so can a pile of debt! The money you earn can help you get through the year and maybe even accumulate in a savings account (like a tax-free savings account), so you can pay down your student loan when it comes due.
  • Avoid car loans. If possible, it's best not to have a car loan while you're in school, as the monthly payment could be hard to fit into your budget. Plus, a car needs gas, repairs, maintenance, and insurance, which really adds up. Many college and university cities have good public transit anyway, so you may not need a car — especially if you're studying online!
  • Avoid credit cards. Credit cards can give you a false sense of security. You think you can afford to make a purchase simply because it can go on your credit card — but these payments need to be included in your budget. Also, by using a credit card you are promising future money to pay for a past expense. If you use a credit card, make sure to clear the balance in full each and every month. At Credit Canada, we've seen many students think they're in the clear just by making the minimum monthly payment. What they don't know is that by not paying the full balance, their debt is growing every month thanks to interest charges.
  • Use a debit card. By using debit instead of credit, payments come from your account right away. This way you can't spend money you don't have (or can't afford). Using a debit card is also a great tool for seeing where your money is actually going, which can help you build a workable budget.
  • Know if you have an RESP. Don't forget to check with your parents to see if they have set up a Registered Education Savings Plan (RESP) for you. You can draw funds from your RESP to put towards your education as soon as you graduate from high school and register in a qualifying post-secondary program.
  • Check out scholarships every year you're in school. Don't just look into scholarships, grants and bursaries for just your first year. Look on a continual basis to see if there is anything you qualify for. Research is invaluable.

How to repay your student loan

Students loans have to be repaid. The smaller your loan, the less time it will take to repay. Student loans are interest-free while you're in school and for six months afterwards.

Student loans and COVID

In its 2020 budget, the Federal Government announced it would eliminate interest on the federal portion of Canada Student Loans for the 2021-22 year. This initiative will help up to 1.4 million students and graduates.

Repayment planning

After finishing school, you'll need to set up your monthly student loan payment. It's important to make your full payment every single month. Every time you make your regular monthly payment, a portion will go towards paying the interest charges on your student loan, and the remaining funds go towards reducing the balance on your student loan.

If you make an increased payment, that extra money will go towards reducing the loan balance. This will help clear the debt faster while also saving you money on interest charges. That's why any time you can pay extra money towards your student loan, you should! That extra money will go directly towards paying down the balance instead of the balance plus interest charges.

Repayment Assistance Plan (RAP)

The most important advice we can give students around student loans is this: don't let your student loan go into default! If it goes into default, you will need six months' worth of payments — in one lump sum — to pull it out of default. Also, for the federal portion of your student loan, your CRA tax refunds will automatically go towards repayment and the provincial portion will go straight to collections, which ruins your credit score.

A student loan repayment assistance plan (RAP) is available for graduates having difficulty repaying their student loans. You can go to the Government of Canada website to learn about your options. You should also contact the National Student Loans Service Centre (NSLSC) for more information.

Repayment extensions

Repayment extensions are also available for graduates struggling to repay their student loans. With a repayment extension, you pay less per month, but you will pay back more due to the accumulated interest. For this reason, repayment extensions should be used as a short-term option only.

Tax credits

When filing your personal income taxes, you can claim the interest you paid on student loans and you can carry over this non-refundable tax credit for up to 5 years. While you're a student, make sure you or your parents claim the appropriate costs associated with your post-secondary education.

Considerations for continuing your education

For those considering more schooling (i.e., grad school, additional certifications, etc.) make sure you plan ahead to ensure you have the financial ability to complete your education. Talk to your family to determine what help they might be willing or able to provide. See what you might be eligible for through the Canada Student Loans Program. Do your research to see if there might be scholarships, grants or bursaries available to you. Finally, you should consider working for a year or two in order to have funds to cover your further education costs.

Credit Canada can help students struggling with debt

Many graduates have high debt due to student loans, lines of credit, and credit cards. If not dealt with, your credit rating can be affected for years to come. If you're struggling with debt, you don't have to face it alone. There are plenty of resources available to help you, such as the National Student Loans Service Centre (NSLSC). Also, Credit Canada can help you deal with your student loan debt and other unsecured debts you may have.

As a non-profit credit counselling agency, Credit Canada can help you with free credit counselling and budgeting expertise to ensure you are able to meet your financial commitments. We offer advice on dealing with your student loans and can assist you with a Debt Consolidation Program for your unsecured debts, which can free up more money that you can put towards your student loan payments. But whatever you do, do not ignore your financial situation or your student loans.

If you would like to arrange a free confidential appointment with one of our certified Credit Counsellors, you can give us a call at 1.800.267.2272 or you can book a free online Debt Assessment. Remember, there's always something new to learn even after you've left school.

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About the Author – Sandra Sherk, Credit Canada

Sandra has been in the credit counselling field for 40 years and her goal is to help empower Canadians take control of their finances. Sandra was the Executive Director of Credit Counselling Service of Durham Region from 1989 to 2011, when she joined Credit Canada as a certified Credit Counsellor. During that time, Sandra has helped Canadians manage their personal finances through smart budgeting, allowing them to keep up with their financial obligations and debt payments, while also putting food on the table. Sandra's tough but fair approach to money management provides the right support Canadians need to rebuild their financial lives and futures.