How to pay off your student loan

Whether you’ve just graduated or have been paying down your loan for years, it pays to take a good hard look at your options.



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One of the biggest ways to waste money is to use the default repayment schedule offered by the student loan system. A lot of people end up paying way more in interest than they should for two reasons:

• They don’t realize that the interest rate on student loans is no bargain, and
• They don’t realize if they use the default they’ll be paying for almost ten years.

First myth buster: The interest you’re being charged is significantly higher than the “prime” being quoted in the news. In fact, it’s higher than the rate many financial institutions will charge.

If you choose to go with the variable rate loan, you’ll pay prime + 2.5%. Choose the fixed rate option and you’ll pay prime plus 5%.

Why is the rate so much higher than the “going” rate on loans? Well, the system has not been charging interest the whole time Sammy Student was in school. Let’s face it, there’s some catching up to do, right? Okay, so the rate is no deal. Why not just consolidate with another lender for a better rate?

You could. But it would mean giving up the interest rate deductibility and the provisions for aid if you run into repayment problems, and most people are loath to give up that kind of safety net.

Second myth buster: Longer repayment means way more interest paid. The student loan system gives you way longer to repay the loan than any normal lender would: up to 10 years. Assuming you use the 6-month grace period, that’s 9.5 years of repayment.

Hang on, grace period? When you leave school, the system gives you six months before you have to make your first payment. Another illusion people choose to see is that this is a “gift.” It’s no gift. The minute you step out of your role as student, the interest rate clock starts ticking. While you may not have to make a payment, the interest is accumulating on your full debt, and that’ll cost you heaps.

Let’s say you graduate with $30,000 in student debt and you choose a variable rate and the default repayment schedule. The cost? $7,508.63. Your monthly payment will be $335.27, leaving lots of money for beer and wings and to buy that new car you just have to have now that you’re a working stiff.

But what if you decided to halve the amount of time you took to repay the loan? Sure, you’d have to cough up more — $576.07 a month — but you’d save a whack of interest: $3,656.83.

If you were determined to repay your student loans in the shortest period of time for the lowest amount of interest, here’s what you’d do:

1. Consolidate at a financial institution that would charge you considerably less interest, particularly if you were going with a fixed-rate loan.

2. Choose a repayment schedule that had you out of debt in less than 5 years.

3. Buckle down and pay off your student loan so you could get on with the rest of your life.

3 comments on “How to pay off your student loan

  1. While this may be true for some students, it's not a one-size-fits-all situation. The interest on my student loan is sitting at 3.5% right now. Sure I could pay it off faster, but I can get much more than 3.5% back by maxing out my RRSP contribution. Bonus: While I'm working on it, but interest is tax deductible…


  2. A few friends and I heard from an overseas student friend that her and friends are using the Out Of The Dark (OOTD) Budgeting free web app to help manage the quickest way to pay off the student loan by using the built in feature called the Credit Card Debt Terminator as a Student Loan Terminator which works really well. We started using OOTD Budgeting for this and it works great because I can manage my optimized loan payments as part of my complete personal budget. The service is completely free at: and can really help get the student loan paid off sonner then later whether by larger periodic payments or a lump sum once a year as permitted by the loan, I expect to pay mine off way faster then initially thought.


  3. This is great for someone with only $30,000 worth of student debt going in, but after 4 years, a post-grad cert., and with a learning disability that required me to also take classes in the summer to get out on time and limited my ability to work while keeping my grades up.. I came out with $65,000 in gov loans, plus a $9,000 student line of credit. My student loan min payment on the 10 year plan is almost $700/month, then I need another $100 min for the line of credit. What about in this type of situation? Pay it off faster? Thanks for the advice, Ill stop buying raman noodles and switch to dog food.


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