Personal Finance

Student Loans/Debt, best way to repay?

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  • Feb 29th, 2016 1:50 pm
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Deal Guru
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Nov 6, 2010
10018 posts
1967 upvotes
Montreal, QC

Student Loans/Debt, best way to repay?

So I'm graduating this coming spring, which means that my student loans are going to need to be repaid soon. I'm studying in Ontario but from Quebec, so while the terms are slightly different, I still have the 6 month exemption period like OSAP does.

I'm wondering what's the best approach to repaying the debt? I'm going to schedule a meeting with the bank (in Quebec, you owe the bank, not the government) to set up a repayment plan soon but wanted RFD's opinion.

I worked some Co-Ops and internships and was fairly frugal while studying so I actually do have enough money to repay the student loan pretty much in cash. However, I've put I'd say a large chunk of that available money (most of which I made during internship) away in a few funds (notably RRSP & TFSA) so it would gather some interest and whatnot. My question is, would it be the right move to literally take everything out to repay my student loans cash in one go? I keep hearing "pay it all off as quick as possible!" which does sound nice, but at the same time, I'd lose all that capital to do other stuff (downpayment, investment capital, RRSPs, TFSAs etc.). Also, I believe I wouldn't be able to withdraw from the RRSP for this purpose (not that I have much in there, but still).

Not sure where the interest rate will sit when I graduate but as of right now, it sits at around 2.5% so it doesn't seem that high. Should I pay back part of it in the 6 month exemption period (how much if so)? Stretch it out? Take a chance and repay all of it? How did other RFD members deal with it?

I know obviously some of the answers will depend on my job situation in the immediate future after graduating, but given the current info we have, what would be your recommendations?

Thanks for the advice!
4 replies
Deal Guru
May 29, 2006
10930 posts
3663 upvotes
personally, my student debt has been the lowest interest rate and longest repayment terms of any of my debt, im at 14 years and have 1 year left, theres no rush to pay this back for me, half of my loan is interest free (NF loan), the Canada portion has interest. really depends on what debt you will have and cash left over every month. once you get a mortgage/car payment, all the random living expenses, paying off the student loan wont be high on the list to do. and all interest paid is claimable on your tax return.
Deal Fanatic
Mar 24, 2008
6278 posts
2753 upvotes
Toronto
I would suggest that you pay off the loan in one shot if you have the money to simplify your life. Once you get that out of the way, you can start saving and investing. I personally paid off my loan at the end of the 6 month grace period and have been very happy with my decision.
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Deal Fanatic
Sep 23, 2007
5654 posts
2168 upvotes
Time Value of Money. The sooner you pay it off, the less interest you pay.

In general, I always recommend paying down your debt first, over other investments. The only exception might be mortgage. By putting money into investments rather than paying down debt, you are essentially betting that your return on investments will be higher than the interest you could have saved from paying down the loan faster. Now...I haven't been a student for a while. So I guess your decision is just a matter of mathematics. If you pay ultra low interest rates on the student loan, then by all means do some investments. But the market outlook doesn't look very good recently.

As for paying it all down, that's up to you. You need to tally your living expenses and see how much you can afford to pay off. I think the average person can't afford to pay it off in one shot. You need some money to live your life.
Deal Fanatic
User avatar
Nov 2, 2013
5697 posts
1522 upvotes
Edmonton, AB
I didn't pay mine off as:

(1) interest is tax deductible
(2) in case of job loss, you can halt payments and interest.
(3) factoring in #1, lots of decent investments that can beat the current rate
(4) liquidity concern. Suppose you have 20K. If you put that 20K in a stock, you can sell it and get your money. You can't "withdraw" your student loan contributions.
Accountant (Public Practice)

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