Posted on Monday March 29, 2021

Learning to manage your student debt

Debt affects about 70% of students in New Brunswick, making it something of a rite of passage for young adults. Faced with high tuition fees and little time to work, students turn to student loans. However, the loans add up quickly. How can you avoid hitting a wall after graduation? Here are our strategies for managing your student debt effectively.

New Brunswickers have one of the highest student debt levels in the country

Since 2017 students have been conducting an annual awareness campaign about their debt. Why? Because the average individual debt load is rising and now coming up on $40,000. Have you taken on a significant amount of debt? You are not alone!

The cost of education in New Brunswick

Sam had to pay for his rent, car and tuition on his part-time barista salary. Even after bringing in a roommate, he quickly realized that he couldn't make ends meet. After four years of school, he was $30,000 in debt.

Across the country, average annual tuition fees increased from $6,375 to $6,580 between 2016–2017 and 2020–2021. But in New Brunswick, average annual tuition fees for the same period rose from $6,714 to $7,829—an increase of more than $1,000 in four years! Like Nova Scotia, Ontario and Saskatchewan, New Brunswick's tuition fees are significantly higher than average. This is one of the factors driving young people like Sam into debt.

Student loans cost less than other types of credit

Every loan has interest attached to it, and student loans are no exception. The big advantage of a student loan is that no interest accrues while the borrower is still in school. In addition, the interest rate for this type of loan is generally lower than for other types of loans.

Case study

Marianne has $20,000 in student debt. In addition, she's leaned a little too heavily on her credit card and cannot pay off her balance at the end of the month. When she finds a job in her field, she takes advantage of her increased income to pay off her credit card quickly, but only pays the minimum on her student loan payments.

If, like Marianne, you have a student loan, you have to meet the minimum repayment terms of that loan once you've completed your studies. However, if you also have other types of debt, it's usually to your advantage to pay them off before your student debt, as they will most likely have a higher interest rate.

Tips for managing student debt

As you just read, student loans don't come with a very high interest rate. But what other benefits do they offer, and how can you manage this debt strategically?

Organize your budget so you have room to save. When you do this, you can put some of the loan into an account, such as a TFSA, so it can grow tax free. After graduation, use the money to pay off your loan—and keep the change!

Once you start paying interest on your student loan, you can also claim tax credits. Use the tax savings from these credits to accelerate your repayment.

Instead of a monthly payment plan, see if you can make student loan payments every two weeks. After paying off her credit cards, Marianne used this strategy, and her accelerated payments reduced the total amount of interest she paid by the time the loan was paid off.

Is there an education savings plan for children?

Only 44% of New Brunswick children have a Registered Education Savings Plan (RESP). Sam was one of the 56% who did not. To help keep his own children out of debt, he has been contributing to an RESP since his oldest child was born.

The RESP is a very helpful tool. By investing in an RESP, parents can take advantage of government grants and grow the funds they set aside to support their children's education so they won't have to borrow as much when they go to school.

Solutions to consider if you have difficulties repaying your loan

Repayment assistance measures are available to support former students in financial difficulty, including the Revision of Terms, which reduces monthly payments by extending the repayment period, and the Repayment Assistance Program (RAP), which sets the amount to be paid based on the borrower's income and family situation.

If you're still having a hard time paying your debts after following the measures and tips in this article, feel free to contact your financial institution. UNI offers a variety of financial tools to help its members and clients during and after their studies. To learn more, visit the "My Education" section.