In every U of T student’s life, there comes a point when the good times must end. It is at this point that student loan debt becomes a reality.

In school, student loans may seem to not be an urgent concern, with more immediate problems at hand, such as academic performance and the living expenses, taking precedence. However, post-academic finances are a subject worth tackling sooner rather than later, as 77 per cent of Canadian graduates regret their student debt decisions.

Different homes, different loans

The most important factor to consider when looking to pay off student loans is where that funding came from in the first place. While domestic loan-takers almost always take federal funding via the National Student Loan Service Centre (NSLSC), the provincial portion could come from a number of agencies, depending on their home province.

This is a distinction without a difference for students from Ontario, British Columbia, Saskatchewan, New Brunswick, and Newfoundland and Labrador, as the relevant provincial agencies cooperate with the NSLSC to consolidate loan payment. However, the Government of Yukon Territory does not offer its own student loan program to students. Likewise, the Government of Québec does not offer its own student loan service, but instead guarantees student loans taken from private companies.

Students from the remaining provinces and territories will have to pay two separate student loan providers: both the NSLSC for the federal portion of their loan, and the relevant provincial agency.

International students and students who have borrowed from private lenders need to verify details of their repayment with their respective loan providers.

Students who received funding from U of T via the University of Toronto Advance Planning for Students financial aid program do not need to repay them, as funding is provided through grants.

Using the National Student Loan Service Centre

The federal government and the Government of Ontario have agreed to handle all loan repayment through the federal NSLSC, the provider that handles loan repayment for students receiving aid from the Ontario Student Assistance Program (OSAP).

Although many students may have already registered with the NSLSC when first applying for a loan, a recent complete overhaul of their login system has required all existing users to re-register through the new system.

Registrants have two methods of access to choose from. Creating a GCKey login will allow users to access other Government of Canada online programs with the same credentials, username, and password, used to access the NSLSC. Alternatively, the SecureKey Sign-In Partner system allows one to log in with the same information they use to access online services at certain eligible financial institutions.

Registration can be done in under 20 minutes, and only requires a Social Insurance Number.

Interest and Repayment Plans

The ideal scenario for any student is paying the entirety of their debt — seen in the “Amount Owing” section of the NSLSC website’s “Loan Summary” — immediately after leaving their studies, and before any interest accrues.

While this may be feasible for people with smaller loans or significant savings, the majority of former students will have to deal with interest accruing as they partially pay their debt on a monthly basis. Payees have two types of interest rate: fixed or variable.

Both rates rely on the NSLSC’s prime rate. As the name implies, a prime rate is the interest rate at which a financial institution lends money to its favoured borrowers.

The NSLSC calculates its prime rate by taking BMO, CIBC, Scotiabank, RBC, and TD Canada Trust’s prime rates, discarding the highest and lowest values, then averaging the remaining three.

Note that this is different from the Bank of Canada’s key interest rate, which is sometimes called “the prime rate.”

A variable interest rate, also referred to as a floating interest rate, is subject to change depending on the economy.

For example, the NSLSC currently has set their variable rate to the prime rate plus 2.5 per cent. This resulted in an interest rate of 6.2 per cent on federal student loan monthly payments for most of last year when the prime rate was 3.7 per cent. However, the aforementioned banks raised their prime interest rates to 3.95 per cent last October, resulting in a 6.45 per cent variable interest rate since then.

Alternatively, a fixed interest rate accrues higher interest immediately, but stays at the same rate no matter the state of the economy.

The current NSLSC fixed interest rate is the prime rate plus five per cent. Following the example above, someone who chose a fixed interest rate before last October would have originally paid interest at a higher rate of 8.7 per cent, but their payments would still include only 8.7 per cent today, unaffected by the fluctuations from the banks.

It is important to note that the NSLSC will use the floating rate by default until a payee specifically ‘locks in’ a fixed rate through the website.

Despite some provinces and territories handling provincial student loan payments through the NSLSC, the option between two rates may only be given for the federal portion of one’s student loan.

For example, OSAP accrues at a floating rate of the prime rate plus one per cent, whether the federal portion takes fixed or floating rates.

The NSLSC defaults to planning monthly payments for 114 months — the average payment time in Canada — but the time frames vary, as can be seen on their loan payment estimator.

Repayment assistance and tax credits

It is reasonable to assume that recent graduates may not have the means to support monthly payments while first establishing their careers, and a number of tools exist to provide financial support.

The Repayment Assistance Plan (RAP) is primary among these, accessible on the NSLSC website. Dependent on family income, RAP applicants may be eligible to reduce their monthly payments, or eliminate them entirely. However, this does not mean that the debt is eliminated.

Specific sections of RAP cater to those with permanent and severe permanent disabilities.

After five years on RAP, or 10 years after graduation, eligible RAP applicants may also receive debt forgiveness, where the federal and provincial governments pay off portions of the loan themselves.

Even those who are ineligible for RAP can receive debt relief in the form of tax credits. Line 319 of a Canadian tax return allows the declaration of interest paid on a student loan in that year. Eligible tax credits will be deducted from the payee’s required tax payment for that year.

This is a non-refundable tax credit, meaning that a declaration will never result in ‘cash back’ to the payee, only a deduction from what is owed. However, interest declarations can be made on payments up to five years in the past, so the Canada Revenue Agency recommends carrying the declaration forward to future years, if one does not expect to owe much tax for the current year.

Are you sure

you’re leaving already?

While many undergraduates enter the workforce as soon as possible after graduation, many others move on to graduate or second-entry undergraduate programs.

In general, full-time students do not have to pay off any student loans, but there is a time limit attached to this: the maximum amount of time a student is allowed to stay enrolled in school payment-free is 340 weeks. This is increased to 400 weeks for students in a doctoral program.

Regardless, once out of full-time school for good, recent graduates have a six month “grace period” after graduation where payments are not expected by the NSLSC. At present, interest accrues on the federal portion of the student loan during this period.

The grace period for provincial loans varies by province or territory. Ontario graduates in the class of 2019 and older have a period of six months as well, and additionally do not accrue interest on their loans during this period.

Recent budget changes to interest rates and the grace period

Recent provincial and federal budgetary changes mean that precise figures will differ for graduates of the class of 2020 and beyond.

Chief among these changes are those to the federal interest rates after November 1. As previously mentioned, the current NSLSC floating interest rate is the prime rate plus 2.5 per cent; this will decrease to only the prime rate. Likewise, the fixed rate is decreasing to the prime rate plus two per cent, down from the prime rate plus five per cent. Provincial and territorial loans remain unaffected by the change in the federal budget.

The federal grace period of OSAP recipients will ‘switch’ with their provincial grace period. While both periods remain at six months, interest on the federal portion of the loan will no longer accrue during this period, while interest will now accrue on the provincial portion.

Finally, more support is being put in place for individuals who may have difficulty repaying their federal loans. The government will provide expanded assistance to RAP applicants with permanent and severe permanent disabilities by broadening the definition of “severe permanent disabilities” and removing restrictions on recipients.

For anyone who has been forced to lapse in their payments, federal debts may now be rehabilitated, and improve one’s financial standing.

This is accomplished by adding the existing interest to the remaining original loan amount and making two payments on the new amount.