Struggling with student debt? Here’s how to pay off student loans faster
If you use a student line of credit, one of the surprising benefits is that the interest rates tend to be lower compared to government student loans. Currently, each financial institution is charging their own variable prime rate, so it will vary based on your lender.
3. Create a payment schedule
In my opinion, it’s wise to pay down your Canada Student Loan during the non-repayment period, which is the first six months after finishing up your studies. Although you won’t be charged interest, it does accrue immediately after you complete your studies. This will help to reduce the interest payable on the loan. For a provincial student loan, each province and territory has its own set of rules. You can find more details on the Government of Canada website.
You can determine what the monthly payments will be using the Loan Repayment Estimator tool. By entering the total amount of your student loan debt, selecting the type of interest (fixed or floating), along with the number of months you estimate you will need to pay off the loan, the calculator gives you the amounts for monthly payments and payable interest.
For example, say you have $25,000 in student loan debt when you graduate, your loan has a 3.2% interest rate and a 10-year repayment period. With option one, you wait to begin making payments six months after finishing school. With option two, on the other hand, if you start making your repayments immediately after you finish school.
With option one, you will pay a $4,246.01 in total interest. With option two, you will pay $3,793.50, reducing the interest amount $452.51. See the chart below for a further breakdown.
For an even smarter way, you could make larger lump sum payments, and this will further reduce your principal amount and thereby shrink your total interest payments.
| Loan repayment estimator | Option 1 | Option 2 |
| Total loan amount | $25,000 | $25,000 |
| Fixed or floating interest rate | Floating | Floating |
| Interest rate | 3.2% | 3.2% |
| Repayment start date | 6 months after finishing school | Immediately after finishing school |
| Number of months to repay loan | 120 | 120 |
| Monthly payment amount | $243.72 | $239.95 |
| Total interest payable over the life of the loan | $4,246.01 | $3,793.50 |
| Total amount payable | $29,246.01 | $28,793.50 |
Want to pay off your student loan faster?
Considering, in Canada, the average student loan debt is $28,000 for a Bachelor’s degree and $15,300 for college graduates, it may feel like a lot of money, especially if you are looking to land your first full-time job. Coming up with a repayment plan to match your comfort level and income is key.
1. Make lump sum payments
Did you know that you don’t have to wait until graduation to start paying off your student loans? You can make payments while you are still a student. Payments during this time go straight towards the principal of your loan, too. So, if your program has a paid internship or co-op program, or if you have a summer job, you can set aside some of your earnings to make lump-sum payments to help reduce your loan and shrink the interest payments.
2. Pay more than the minimum amount
If you have the capacity, increasing the amount of your monthly payments will help you get out of debt faster. What’s more, the amount you pay above the minimum payment will go toward paying off the principal of the loan. Even better, this will help to reduce your balance and thus reduce the amount of interest you will have to pay.