Summary in 30 seconds:
As of September 30th student loan deferment ended.
Here’s what you need to do:
- Tip # 1 – Automate anything you can to make payments on time.
- Tip # 2 – Late payments and defaults can hurt your credit score, so talk with your lender to arrange reduced installments.
- Tip # 3 – Apply for Repayment Assistance Plan (RAP) at the National Student Loans Service Centre.
- Tip # 4 – Interest rates are very low, consolidate older loans. Use a co-signer, if its an option.
Do You Have to Start Paying Again?
Students are officially back on the hook for their loans. The initial 6 month deferment ended September 30th. There are no substantial updates from the banks or government representatives.
The number of COVID-19 cases are on the rise and rollbacks to limit the spread are being evaluated. A number of groups working to extend the moratorium have come up empty. Groups such as, Canadian Alliance of Student Associations (CASA) have communicated their expectations.
“We’ve been very clear with the government. We would like existing funds that were set aside for the cancelled Canada Student Service Grant to be reallocated to extend the Canada Student Loans payment moratorium, improving tech access for low-income students, and various other student support programs. $912 million can go a long way to help re-energize the economy if it is properly invested in students,” said Akanksha Bhatnagar on behalf of CASA.
Bhatnagar went on to say, “One in two students work during the school year to pay for the increasing costs of education. Furthermore, most students work over the summer in order to focus on their academics and extracurriculars during the school year – that was not possible because of COVID. By extending the student loan payment moratorium, students and recent graduates will be able to regain their financial footing following COVID-19 before being asked to repay.”
Tip # 1 – Automate, Automate, Automate
Stay on top of your payments. This can be simple, yet many students forget all too often. The moment you get behind on your obligations is the moment, you will owe more in late fees and additional interest.
Rebuilding your credit can be a difficult process but it doesn’t have to be. As a student, you face enough challenges as it is; throw in social distancing and virtual classrooms and it can seem downright overwhelming. Many students have a hard time adjusting to their new lifestyle and even more so as the “new normal” sets in. As if getting to class on time, keeping up on any new assignments and stocking the fridge with fresh groceries wasn’t enough, now you’ve got to worry about staying on top of your bills and staying out of debt.
Instead, set it and forget it.
Ensure that your automatic payments are working. If you hadn’t previously registered for that hat prior to the deferment, then consider doing so. Activating this can be a great tool to pay on time.
Make it Easy on Yourself:
- Set-up reminders on your phone.
- Download your banking app on your phone.
- Set-up auto-pay through your bank. Almost all online banking apps have this built-in.
Tip # 2 – Don’t Let Student Loans Affect Credit Score
Unfortunately, many students have unforeseen expenses. Even with low interest credit cards in Canada, a large number of borrowers are finding it difficult to pay their loans. After many months of late or delinquent payments, this is highly problematic. Plan ahead and make sure you don’t default.
“For most loans, once you default you owe the entire loan amount. If you get behind on your student loan for a consecutive 270 days, then your account will be sent to the collections department at the CRA, and you want to stay as far away from that scenario as possible” says Clive Shapiro, financial columnist for RateRaiders.ca.
“You could chose to file for bankruptcy, but only consider taking this road if all others are exhausted. This will stay on your credit report for 10 years and wreak havoc on your score by possibly hundreds of points,” says Shapiro.
He recommends to “instead try to work with your lender and see if they are willing to reduce or postpone payments. Yes you might be paying more interest than principal but this is better than nothing at all and it is only temporary until you can find your feet.”
The National Student Loans Service Centre can offer you repayment options but you have to apply as its not automatic. If eligible you can receive up to 6 months deferment or reduced installments.
How Can You Prevent Your Loan To Get Sent to Collections?
There are ways to prevent this. Besides finding side hustles to earn extra income, students can find zero balance transfer credit cards. These cards allow you up to six months of no interest and some lenders offer special promotions offering up to twelve months.
“This would prevent additional interest owed on outstanding credit card balances and potentially free up some cash to pay part of your student loan,” said Shapiro.
Tip # 3 – Consolidate Student Loans For Lower Interest Rates
Given the current state of interest rates, it is recommended to consolidate the loan. While approval is not guaranteed, many students take advantage of this refinancing option. It allows you to lock into a lower interest rate.
As the Bank of Canada recently announced, the interest rate of 0.25% will stay as such until inflation is on target.
To help you get approved, make sure you both build up credit with secured credit cards and timely payments. The key here is to pay off your bills on time. A stable part-time employment or liquid can be used to secure the loan as well.
October 5, 2020
