Dealing with student loan debt

As reading week passes, graduating students start to contemplate their futures outside the halls of academia and one of the most prominent things on their minds will be paying off their student debts.

Their educations have largely been paid for through a combination of gifts (scholarships from schools or organizations, and/or monetary offerings from parents and relatives), and grants and loans from government sources.

In Ontario, that is handled through the Ontario Student Assistance Program (OSAP) and on graduation or leaving post-secondary school, students have to pay at least some of it back, and maybe all of it.

Ontario caps the amount a full-time student is asked to pay back, based on economic factors such as family income. Students in a two-term academic year have to pay back up to $7,300; those in a three-term year, $10,950. If students require more than those amounts, respectively, the difference is made up through the Ontario Student Opportunity Grant. Consideration for that grant is automatic, so there are no additional applications required.

However, if you don’t finish your academic year and got a grant, you may be required to pay that amount back in addition to the $7,300 or $10,950. You may also be required to pay more than the set cap if you don’t file an income tax return, or if any family member listed on your OSAP application doesn’t file a return, or if an audit of your application reveals that you were awarded more than you would have been entitled to.

As with any other form of debt, the longer you take to pay off your student loans, the more it will cost.

There is a six-month grace period after graduation (or after leaving college or university without graduating) during which loans can be paid back, mostly without interest. In the seventh month, a payment schedule is brought into effect.

The way it works is that shortly after graduation, the student will receive a letter from the National Student Loan Service Centre outlining the amount owed, the interest rate charged on the debt and the expected monthly payment according to terms for paying back the amount owed. Payments start at the end of the seventh month after leaving school.

Payment schedules can range from 10 to 15 years and they aren’t set in stone, which means that you can apply to alter them according to your earning status — pay more if you are earning more; have them reduced if you can’t afford to make them.

Repayment assistance through Ontario’s Repayment Assistance Plan (RAP) is available to those who can’t afford to make payments. The repayment amount is recalculated based on the amount owed and your family size and income. Your monthly payments are reset to a lower amount and then grow as your income grows, up to a maximum of 20 percent of your family’s earnings. Those with very low or no income are entitled to a suspension of monthly payments until their family income grows to a certain level.

Students can also chance the term of their loan repayment scheduled by applying through the National Student Loan Centre.

One last thing to remember: the amount owing on your student loan will never be discharged until it’s paid off in full. The only possible exception is if you declare bankruptcy and have been out of school for longer than five years, in which case you can apply to have your debt discharged through a bankruptcy court.

Outside of that possibility, you are still required to make your monthly payments on your OSAP loan even in bankruptcy, though you can make changes to them through the repayment assistance measures listed above.

 

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