Student loans – a financial burden for young adults

The first signs of summer are finally here, and college and university students across the country are winding up their classes. For many of them, it will be time to leave higher education with one or more qualifications – a college diploma, a bachelor’s degree, a master’s or even a PhD. For some of them, however, their celebrations will be shortlived because they will now have to start paying off their student loans.

According to a Statistics Canada survey published last February, student loans in Canada totaled $28.3 billion in 2012, 44.1% higher than in 1999. The survey also reports that approximately one in eight Canadian families have a member paying off a student loan worth an average of $10,000.

These debts are naturally heavy enough to affect young graduates’ finances, and with the resulting less room for manoeuvre they often have to put off some major life projects like buying a first home or starting a family.

Here are seven pointers to help recent graduates not only to pay off their student loans and avoid getting deeper into debt but also to develop good financial habits:

1. Pay off your student loan as formally agreed

   That’s only logical, isn’t it! However, if you don’t think that’s possible, contact the financial institution handling your loan right away in order to negotiate other arrangements. You might discover that you’re eligible for the Deferred Payment Plan if you live in Quebec or the Repayment Assistance Plan if you live in Ontario;

2. Don’t leave any debts unpaid

   Obtain confirmation from your educational institution that you don’t have any outstanding debts (e.g. for tuition, residence fees, library fines and so on);

3. Check your credit rating

   Request a free copy of your credit rating from Equifax or TransUnion and review your outstanding debts to ensure that you haven’t forgotten to pay all your creditors;

4. Use only one credit card

   If you have several credit cards, keep only one and be sure to pay off the entire balance at the end of every month;

5. Make a budget

   Make a budget consisting of your estimated monthly outlays for basic living expenses like groceries, accommodation and clothing as well as your student loan. Manage your income and spending in order to stick to your budget because that will help you avoid getting deeper into debt;

6. Watch your big expenses

   Maybe you’ve just landed a job in your field and you’re making more money – congratulations! However, you still should try to limit your expenses to the bare minimum for some time. In other words, that new car or the all-inclusive trip to Punta Cana could maybe wait a while!

7. Develop good savings habits

   Start saving money as soon as you can. One good way is to contact your bank to set up pre-authorized contributions to a savings plan – for instance, for purchasing your first house under the federal Home Buyers’ Plan (HBP), which is an option under the RRSP (Registered Retirement Savings Plan) program.

All the same, you might still end up in a vulnerable financial situation despite your best efforts. For example, are you facing persistently high monthly credit card balances compounded by equally high interest charges? Can you no longer pay your student loan instalments or other payments? If that’s the case, help is available. Although student loans are considered non-dischargeable debts, various solutions exist to ease your financial burden. And that’s where Ginsberg Gingras’ trustees in bankruptcy come in – to give you good advice on how to get your personal finances back on track. So, don’t hesitate to contact us. Remember, your first consultation is always free and without any obligation on your part. Discretion assured.