Student loans: Everything you need to know

You did it. You battled through your post-secondary education, slid your tassel from right to left on graduation day and hung your shiny new degree on the wall.

But somewhere between basking in your accomplishment and your first job interview, it happens: a letter arrives from the National Student Loans Service Centre — your Study End Date Notice.

Yep, it's time to pay back your loan…

The nitty gritty on student loans
The good news is you're not alone. More than half of Canadians who graduate do so with a student loan and carry an average balance of $13,000 for college students and $20,000 for university students. [More: Your RESP rulebook: Little known tips to help cover the costs of education]

And since only 1 in 5 are successful at paying off this loan within a year of graduation, it's important to know the Who, What, When, Where and How of your Canadian student loan.

To help you out, we've included some 'Golden Rules' to break down your loan payments without causing, well, a breakdown…

WHO - am I paying?
Don't let the single application fool you - if you got a government student loan, you are likely paying back two different parties: the Canadian federal government and your provincial government.

This means two different interest rates and, depending on where you live, two different methods of payment.

Golden Rule: Those with full-time student loans from Ontario, Saskatchewan, New Brunswick, Newfoundland/Labrador and British Columbia have an integrated student loan and thus only need to make payments through National Student Loans Service Centre (NSLSC). [More: Kids with coin: Start teaching your kids financial responsibility now]

Loans from Alberta, Manitoba, Nova Scotia and PEI make payments through NSLSC and their respective provincial student loans office.

Full-time loans from Quebec, Nunavut and Northwest Territories are made to the Student Assistance Office for the province only.

All part-time student loans make repayment through NSLSC.

WHAT - interest rate am I being charged?
Interest will be charged based on the designated rates at the time when you start making payments, not when your loan was issued.

The federal portion of your student loan comes with a hefty prime +5% fixed rate, for those who choose that route, but most likely you will be paying the floating rate of prime +2.5%.

Golden Rule: Those with loans from before August 1, 1995 have a different interest rate. For the 2011-2012 school year, NSLSC has designated this rate as 3.875%.

Of note, the provincial rate differs by province, but is typically lower than the national rate.

Golden Rule: If you pay your provincial and federal portions back separately, pay off the one with the highest interest rate first, to save money paid out in interest. [More: Canadian teens are overly optimistic about their future earning potential]

WHEN - do I get charged interest and need to make payments?
The NSLSC gives grads a '6-month grace period' before interest gets charged on the federal portion of a student loan and before scheduled payments need to be made.

Contrary to popular belief, interest on your provincial loan will start being charged immediately after your study end date (to be clear, this is the end of your last semester and not graduation day).

Golden Rule: While it may be called a 'grace' period, this is really your time to attack. You can start making lump sum payments the day your study date ends. All payments made in the first 6 months will go directly to your principal and will help keep interest and future monthly payments down.

After the (amazing) grace ...
You'll have to start making monthly payments after the grace period based on your interest rate, loan value and intended payback period. The national student loans site offers a great calculator to determine your loan repayment schedule.

The standard payback period issued is 9.5 years, but you are eligible for a maximum of 14.5 years if you are having trouble making payments.

Golden Rule: If you can afford to, choose a shorter payback period to reduce those pesky interest fees.

WHERE - do I pay?
Lump sum payments can be set up easily through online banking. To make a payment, simply create a new payee entitled 'National Student Loans Service' and use your NSLSC account number (you can find it on top of the 'Study End Date' letter or by logging into your online account).

Golden Rule: Prepare this information before your study end date to ensure there are no delays.

Another letter arrives …
When the grace period draws to an end, you will receive another letter outlining your payment plan.

Payments at this phase can be made by automatic withdrawal or cheque and/or you can continue to make lump sum payments online.

Golden Rule: Don't like the proposed payback plan? You can respond to the letter with your requested changes. However, be aware that if you don't voice any suggestions or concerns, payments will be taken automatically as the letter outlines.

HOW - do I get help if I can't make payments?
The NSLSC has many options if you have trouble making payments.

Based on your financial situation, they may offer you a revision of terms (changing your payback period) and/or interest relief (where the government will keep paying your interest).

If you are still unable to pay after 5 years, they may give you a 'loan reduction' of up to $26,000. People with physical disability or extreme cases of repayment problems may be eligible for loan forgiveness.

Golden Rule: While these options may seem tempting, they could have serious effects on your credit, so only resort to them if absolutely necessary.

Where creativity counts
Creativity goes a long way with student loans. If you can't bootstrap your way to financial freedom, consider using a bank loan with a lower interest rate to pay off the student loan, or a personal loan from a friend or family member after the grace period. [More: Start now Pretty Young Thing — the value of saving & investing at an early age]

And rest assured, there is a wee bit of relief - tax relief, that is (which will come in handy as your income expands).

The final Golden Rule: You will get a tax credit for the interest portion of your government student loan (something you don't get credit for with a bank loan).

The 'end date notice' for your loan
In the end, a student loan is about investing in your future.  But as worthy as taking on this debt is, it's all too easy to rationalize not paying it down quick enough. If you consider this to be 'good debt' that you can take your sweet time paying off, smarten up. What you need is an 'end date notice' for your student loan.  So, go on - write it up yourself!  Bigger and better investment opportunities await

GoldenGirlFinance.ca is a free personal finance and education site for women.

Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial or legal strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances, as well as fully aware of current laws and regulations.

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