Student Loan Repayment Obligations May Catch Some By Surprise

The six-month period between finishing school and the first loan payment often passes more quickly than students and recent graduates expect. While obtaining funding for education typically requires considerable effort, whether through student loans , scholarships or other non-repayable sources, the transition to repayment is typically much less structured. As a result, many students and their families find themselves unprepared when the time to begin repayment arrives.

The clock starts whenever studying stops, not just upon graduation

One of the most important details parents and students often miss is that the six-month repayment grace period begins whenever a student stops studying full time, not just when they graduate. The clock starts ticking the moment a student drops out, switches to part-time studies below the required threshold, takes a medical leave or transitions into a program such as an apprenticeship that falls outside the scope of the loan agreement.

Students who leave a degree program and enroll in a college diploma program a semester later may not realize their repayment clock has already started. Without notifying the National Student Loans Service Centre (NSLSC) of any change in enrolment status, a borrower can find themselves in repayment standing without knowing it. Students should report any status change right away to protect both their loan standing and their credit rating.

What repayment actually looks like

Repayment starts seven months after leaving school, with a standard term of 10 years. Since April 2023, federal Canada Student Loans no longer accrue interest, making them unsuitable for debt consolidation loans that add interest and shorten amortization.

Whether interest applies on the provincial portion of a student loan depends on the province. Most have eliminated ongoing interest charges and students make one payment each month to repay their integrated federal and provincial student loans. However, interest accrues on Ontario and Saskatchewan student loans. And for those with loans from Alberta, Nova Scotia and P.E.I., payments are made separately from their federal student loan payments.

Monthly student loan obligations can escalate quickly once repayment begins, the terms of which are reported to the credit bureaus. For example, a student loan of $25,000 paid back over nine and a half years results in monthly payments of about $220. Yet many students face a much heavier debt load when credit cards or a student line of credit are factored in, pushing total monthly payments to $650 or more. Obligations at that level can make it difficult for students to pursue other goals , especially when their income does not stretch far enough to cover significant amounts of debt.

The Repayment Assistance Plan: A safety net most grads do not know about

The federal government offers a program called the Repayment Assistance Plan (RAP) that caps monthly payments based on income and family size. If income is low enough and the loan is currently up to date, payments can be reduced to zero. RAP is not based on someone’s credit score and covers the federal portion of a loan. Grads or former students must reapply every six months and any remaining federal balance may be forgiven after 15 years.

Grads and anyone who left school can apply as soon as repayment begins, making RAP a planning tool rather than an emergency measure. Many grads do not know it exists or assume it is only for people in serious financial trouble , which can lead to missed payments that could have been avoided.

Government loans and student lines of credit are not the same thing

Many grads leave school carrying both a government student loan and a student line of credit from a bank or credit union. These are fundamentally different products. Government loans carry the protections described above while a student line of credit does not. Interest typically starts accumulating while the student is still in school, repayment terms are set by the lender and there is no income-based assistance if payments become unmanageable.

A grad or former student who treats both obligations as one lump of student debt can badly underestimate what they owe and to whom. When helping young adults plan their repayment budget, encourage them to list each debt separately beside the name of the lender, the balance owing, the interest rate and the monthly payment. This single step prevents a planning error that is surprisingly common and challenging to untangle once payments are missed.

How parents can help without taking over

The most useful thing a parent can do is to have an honest conversation about money before the first payment notice arrives. That means looking together at what the grad or former student owes, what their income is and what a realistic monthly budget looks like once rent, groceries, transportation, debt payments and other essentials are accounted for. Budgets at this stage are often tight so the goal is not to solve the problem for them but to make sure they understand their situation.

If a grad is job hunting during the six-month grace period, encourage her or him to log into the My Service Canada Account to review balances and repayment schedules, and to look into RAP before it is needed. If the job search takes longer than expected, it is also worth contacting other lenders directly to ask about hardship or deferral options.

A simple budget outlined during the grace period can help a grad get through a challenging transition while building stronger money habits at the same time.

There is also a meaningful difference between offering support and absorbing a problem. Covering a payment here and there can quietly become an expectation that masks a budget issue needing direct attention. If the debt feels genuinely unmanageable, a free and confidential meeting with a non-profit credit counsellor can help grads or former students understand all of their options before the situation gets worse.

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Student loan repayment does not have to define the early career years. With the right information and a realistic plan in place before repayment begins, grads or former students can meet their first payment with confidence.

Mary Castillo is a Saskatoon-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt since 1996.