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Student Debt Repayment

Post secondary education is definitely an investment in ones’  future, but the costs are rising each and every year.  Statistics Canada reported that Canadian undergraduate tuition fees in the 2008/09 academic year rose 3.6% from the previous year, after a 2.8% increase in the 2007/08 year. Over the 10 year period from 1998/99 to 2008/08, undergrad tuition fees rose on average 4.4% per year, while inflation in comparison rose 2.3% per year over the same period.

Because of this, it’s not surprising that many students must go into debt to pursue their education.  In fact, the Canadian Federation of Students claims that as of this writing, that the level of Canada Student Loan debt is currently over $13 Billion.  This even excludes provincial and private loans to pursue education, and many students must borrow from multiple sources.

One advantage of a Canada Student Loan versus a bank student loan, is that any interest paid on your loan is tax-deductible (that is, you pay the interest in pre-tax dollars).  Every year, come tax season, the National Student Loan Service Centre (NSLSC) mails out a receipt for the total interest paid on your loans to claim on your tax return.

If you’re like me, and have loans through both the NSLSC and a bank, you may want to consider this strategy to see if it makes sense for you.

Because the interest on your bank loan is not tax deductible, it is likely to your benefit to pay off this loan as quickly as possible, in order to pay as little interest as you can.  However, many students in their first few years coming out of school, likely don’t have incredibly lucrative careers yet.  Hence, you may not have the cash flow to pay as much as you would like to your loans as quickly as you’d like.

Now, when it comes to repayment at your bank, you won’t really have a lot of options: they will likely dictate the term of your loan repayment, and assign an interest rate based on your credit history.  You may even have had a co-signer on your loan (like a parent, spouse, or other family member) whose credit this loan will affect.  The bank will determine what your periodic payments will be, and you’ll start paying!

With a Canada Student Loan, there is the possibility for a tad more flexibility.  If your income is not over a certain threshold, you could qualify for interest relief, where you do not have to make payments for a period of time.  Also, you get to choose either a fixed or variable rate (set by the NSLSC) for your repayment, and can negotiate the term.  If you’ve subscribed to the NSLSC’s Online Services, you can even log on to their website, and customize your repayment terms there.

Now to the strategy:

*Note: Evaluate whether this is right for you.  You may wish to seek outside professional financial advice.

  • Say, right now you’re paying $300 per month to the NSLSC, and an additional $300 to your bank each month, for $600 total.
  • By extending the term of your Canada Student Loan to the maximum they will allow, this will lower your monthly payments.  You will also end up paying more interest, of course, but as discussed previously it is tax deductible unlike the interest on your bank loan.  Say in our example, extending your term allows you to lower your NSLSC payment to $200.
  • This frees up $100 more cash flow each month!  Now, it’s not time to go out and party.  We’re going to turn around and pay this additional $100 on our bank loan, making our payment there $400 total.
  • We’ll continue to pay off the bank loan at an accelerated rate, getting rid of the non-interest deductible loan more quickly.
  • Once the bank loan has been eliminated, this doesn’t mean we have $400 per month to spend on clothes and beer: we go bank and adjust the NSLSC payment to the entire $600 per month, accelerating the repayment of that loan.

By employing this strategy, you could end up saving money spent on interest on your student loans!  Crunch the numbers yourself, or speak to a financial pro and see if this might work for you.…

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Snowball Debt Repayment

A very effective strategy to helping you fight your way out of debt is to use a snowball!  That is, utilize the snowball debt repayment strategy.

Think of your total debt as a snowball.  Paying off that debt is analogous to melting away the layers of snow, until it had completely melted.  The key here, is not to use your credit  in the meantime, otherwise you’re defeating the purpose of entirely eliminating your debt.  To curb your spending use another frigid solution: place your cards on ice… literally!  Freeze them in a water filled container in your freezer.  This way, you’ll have to go through the trouble of defrosting them if you need to use the card.  Hopefully this will give you the time to consider making a wiser spending decision.  But I digress…

Now, how do you employ this strategy?  Say you have three monthly debt payments:  a store credit card (such as a Sears or HBC card), a major credit card (such as a Visa, MasterCard, or AMEX), and a bank line of credit.

Listed are the interest rates on each of these debts, and the minimum percentage payment of the balance, and the total minimum monthly payment that you must make (let’s say you must only pay interest towards the line of credit, hence 0% in our example below).



Int. Rate

Minimum %

Min. Payment

HBC Card










Credit Line





So, in this example, your total monthly debt payments are: $38.39 + $76.16 + $70.83 = $185.38.

Now, you’re committed to paying off this debt, and have decided that you will allocate $250 per month to do so.  It’s not a significant amount, but it’s all you can afford at the moment.  Don’t worry, it’s a step in the right direction!

Now the snowball part:  each of these debts is one layer of the snowball.  The key here is to pay off the highest interest debt first (the outside layer of the snowball, so to speak), since it is costing you the most money that does not go towards the principal (the original amount borrowed).  Note however, that you always want to pay the minimum monthly payment to all your bills so you don’t get dinged with penalty charges, or worse: collection agents!

In the first month, since our HBC card has the highest rate, we pay the minimum balance on our Visa and Credit Line ($76.16 + $70.83 = $146.99), leaving us $103.01 to put towards the HBC card.  Now, we continue to pay $103.01 on to our HBC card until is has been entirely paid off.  Now’s the time to destroy your card and cancel the account.  Step one accomplished!

Now you continue as before, making your minimum credit line payment of $70.83, and now you have a whole $179.17 to pay towards your Visa every month!  Once it’s done, cut it, cancel it, and concentrate on the credit line!

Now that your other debts are paid, you can contribute the entire $250 per month towards paying down your credit line!

Paying off your debts isn’t easy, but once completed you have control of all your money.  In our example here, it’s like having an extra $250 per month to do with whatever you’d like!  Personally, I’d recommend saving or investing it, but that’s up to you.  It is your money after all.…