Canada’s Government isn’t Likely Forgiving Your Student Loans


Here’s What You Can Do Instead

Last Tuesday, at a townhall campaign event in Miami, Joe Biden pledged to eliminate student debt for college students who went to a state school and who’s parents make less than $125,000 per year.  He further pledged to reduce everyone’s student debt by $10,000. 

https://www.forbes.com/sites/adamminsky/2020/10/07/biden-affirms-i-will-eliminate-your-student-debt/#4167eee258a7

Just how much that could end up costing the American taxpayer isn’t known but according to MSNBC the cost could easily exceed $750 billion. 

There is no doubt student debt places a heavy burden on recent graduates and slows their ability to purchase homes, start businesses, invest for retirement and make other kinds of purchases that move the economy forward.  By some estimates the total amount of debt recent college graduates are carrying exceeds $1.5 trillion.  I’m not qualified to debate the validity of Biden’s plan and to be honest I have a hard time seeing the relevance of it for Canada. 

Here in the Great White North we enjoy a number of federally sponsored programs that serve to reduce the amount that people are required to repay, a kind of government backed default insurance and preferential interest rates but the fact still remains, according to debt101.ca that Canadians owe approximately $22 billion in student loans.  As a measure of per capita that works out to $578 owed for every Canadian and a whopping $4573 owed for every American. 

Clearly the student debt load in the United States creates a significantly greater burden than it does here in Canada.  But that should not belittle the fact that student debt is still a concern for recent graduates in Canada too.  According to Stats Canada the average graduate finishes school with a little over $26,000 in debt. 

I had the opportunity to work with a recent university graduate and while everyone’s situation is different here are a few things we did to help alleviate his stress and set him on track to be debt free.

1 – Don’t panic and give yourself a break   

While $26,000 might seem like a lot of money to a broke college student, in the grand scheme of things it really isn’t that much.  In today’s interest rate environment and with the government guarantees attached to most student loans it’s possible to negotiate a 10-year payment plan around $200 per month. 

2 – Start with a Zero-Based Budget

Also known as a Reverse Budget, start every month by estimating your income for the coming month and spend every penny on paper before the month begins.  Although temptations, like a night out with your buddies will come, don’t deviate from the plan! 

Take any excess and put it toward long term goals, like debt repayment and savings.  Unlike mortgages, there is no penalty to pay off your student debt faster so get after it and pay as much as you can as fast as you can.  Using this strategy, I’ve seen people cut their repayment time down by as much as 80%. 

But…

3 – Don’t forget to save

I often recommend splitting your excess cashflow 50/50 between debt repayment and savings to start.   First set up an emergency fund.  Experts disagree on how much you should have ready access to but while you still have debt, I side with those who propose a modest emergency fund.  $1000.00 – $3000.00 should be enough to pay for car repairs, emergency travel, uninsured dental injuries etc.  Once the debt is repaid return to this and bump it up to a full 3 months of expenses, (6 months if you’re self-employed) and then open an account for a down payment on a house and a retirement fund. 

What constitutes an emergency?  Again, experts disagree but I say an emergency is anything you didn’t see coming and can’t put off.  There is no such thing as an emergency trip to Cancun unless your dying grandmother lives there.  There is also no such thing as emergency snow tires or an emergency birthday gift, those things are obvious to anyone with even a modicum of fore thought. 

So, there you have it.  While student debt has reached crisis levels in the United States, I don’t think we are going to see any serious attempt by a Canadian politician to eliminate student debt here any time soon.  But with a little planning and discipline most recent graduates should be able to pay off their student debt in 10 years or less without placing a significant burden on their ability to live life. 

For more information on how I work with recent graduates and help them to eliminate debt, build wealth and leave a legacy, reach out any time at lauren.sheil@f55f.com or call me at 613-295-4141.

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