At the end of March, Prime Minister Justin Trudeau announced a pause on federal government student loan payments until September, interest-free, and several provinces are offering the same. Many private lenders are offering deferrals, which do charge interest. With so many options, there’s a lot of confusion around whether or not to keep paying down this debt.
The answer depends on how much student debt you’re carrying, and what kind. Your personal financial situation is a factor too. Here are answers to some personal finance questions that students, recent grads, and young workers may have related to student debt.
What should I do about my federal student debt?
All federal student loans have been suspended until September 30—meaning you don’t have to make payments and interest doesn’t accrue. If you usually pay via pre-authorized debit or cheque then the payment freeze has already kicked in automatically. But if you set up automatic payments through your bank then you have to get in touch to stop payments until the end of September.
According to Bridget Casey, who founded the financial literacy site Money After Graduation, you shouldn’t pay down any debt that you don’t need to.
“Many people aren’t earning any money, or much money right now. This is a time for self-preservation. Just try to survive and preserve cash,” she said. If you’re in a position to pay it down in October, then do it then. Otherwise, use this money to beef up or start your emergency fund.
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What about my provincial loans?
Many but not all provinces have also issued student loan freezes, similar to what Ottawa declared: pausing payments and not charging interest. You can find out about what’s available in your province or territory here.
Should I defer my private student debt?
Unlike payment holidays on government loans, banks and credit unions are offering payment deferrals on student lines of credit and personal loans. So you don’t have to make payments for a few months but they’re charging you interest in the meantime.
If you’re in financial distress, this can be a lifeline to buy you some time. But if you can manage those payments, Casey says to factor in the amount of money you owe: if you have a large balance of $15,000 or more, then deferring can result in a significant amount of interest racking up.
Other types of debt should also be considered in your decision, Casey says. “Let’s say you owe $5,000 on a credit card at 19.99 percent but have $40,000 on student lines of credit at 6 percent, then even though (the student loan has) lower interest it costs you more money ($500 vs $1,200 in six months),” said Casey.
Larger balances, if deferred, can mean that the amount of time you’re paying off this debt is longer, and in some cases, your monthly payments may increase too (if it’s a fixed-term loan, for example). Casey suggests trying to stay on top of these payments rather than deferring if you have a stable job and extra cash for emergencies.
Is it worth taking on student debt if courses are going to be offered online only?
According to Jessica Moorhouse, a millennial money expert and financial counsellor, it depends on your field of study. She studied film and needed access to equipment to get the most value out of her degree. Moorhouse says that if your degree or diploma requires hands-on learning, like dentistry, then doing it online won’t be as helpful.
One option is to take required courses like history or English online and save the courses with field work and labs for another time.
Casey says that delaying by a semester or a year comes with financial implications for the rest of your career. She doesn’t recommend extending the time it takes you to graduate just because things are in flux—after all, online learning may extend into next year and the year after that.
Should I spend money to live in residence?
If courses are being offered online, Moorhouse suggests skipping residence and living at home if that’s an option because you can save a lot of money while still attending your school of choice, even if it’s in another part of the country.
If you need to live in res or you’re really excited about the prospect, Casey cautions that it won’t be your “typical” residence experience. There will likely be rules around physical distancing and gathering in groups.
For anything related to the coming school year, Casey suggests being flexible because things can change quickly. “Go forward with your best-case scenario and adjust and scale it back as needed. But don’t stop your dreams; don’t change schools. You just have to navigate life with COVID because that’s how it is now,” she said.
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