Student loans: understanding your options
Balancing student loan repayments with saving for the future.
By ATB Financial 17 April 2023 3 min read
Many of us graduate college or university with student loan debt. Like any debt, student loans are varied and have different interest rates and repayment terms.
Your first instinct might be to pay off your student loans as quickly as possible. Of course, you want to be debt-free faster, but there are a few things to consider first. Start by reviewing the terms of your student debt, including your payment obligations. And depending on your situation, consider the benefits of a balanced approach to your debt-repayment strategy.
Types of student loans
Depending on the type of loan, you may be able to balance making your student loan payments while saving for your future.
There are several types of student loans, including:
- Federal student loans
- Provincial student loans
- Personal loans (from family members)
- Lines of credit
- Credit card debt
If you acquired credit card debt while in school, focus on paying this down as quickly as possible. Credit card interest rates are high! These higher rates can cause debt to really accumulate quickly if you aren’t paying your balances in full before the due date.
If you have student loans, personal loans or lines of credit with low or no interest, saving or investing while paying down your student debt might be possible. For many new graduates, setting aside monthly savings to establish an emergency fund is a good place to start. Others may invest to save to buy their first home or even begin long-term retirement planning.
Let’s take a deeper look at federal and provincial student loan types, so you can better understand your options.
Federal student loans
Effective Apr. 1, 2023, all Canada Student Loans from the Government of Canada will no longer have an accumulative interest. This includes loans that are currently being repaid. However, if you have interest accumulated on your loan from before April 1, 2023, you’re still responsible for paying it.
Loans under the Canada Student Loans program are payment-free until six months after you graduate or leave school. These loans allow you to make lump-sum pre-payments and increased monthly payments, which go towards reducing the principal amount of the loan.
Alberta provincial student loans
Currently, the interest rate on Alberta student loans is prime +1% for variable-rate loans, These are payment-free for six months after you graduate or leave school.
The Alberta government announced that effective July 1, 2023, the interest rate will be reduced to prime, and the loan payment grace period will be extended to one year. In addition, a non-refundable tax credit is available for interest paid on provincial student loans.
Consider your personal situation and long-term goals
If carrying debt gives you a knot in your stomach, you might find greater benefits (and feel better) by paying off your student loans quickly.
If you’re okay with carrying some low or no-interest debt, you can create a long-term financial plan that allows you to save while paying off your student loans.
For example, some money you might have used for early loan repayment can be invested elsewhere. If the interest rate on your debt is less than the average return expected on that investment, you could benefit more financially from investing it compared to putting it towards the loan. That said, you should also consider the risk of investing and seek the advice of a financial advisor.
Meet with a Financial Advisor
If you’re still unsure what will be most advantageous for your unique situation, meet with an ATB Financial Advisor. They can help make sense of your student loan details and review your current financial situation. Together, you can create a plan to help you reach your long-term financial goals.
It's important to balance paying off debt, investing for the future and having fun doing the things that make you happy. Achieving all those things is possible, and you can do it without feeling stressed. If you have questions or need help, we are here for you.
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