The very heart of Money After Graduation is my own journey out of student loan debt. I started with nearly $21,000 and now with less than $5,000 to go, I’m nearly at the end of my journey — but plenty of others are just beginning or in the middle of theirs! With the average student loan debt upon graduation approaching $27,000, graduating in the red is not uncommon. In my Googling I found this nifty counter that actually shows the $15 billion+ student loan balance in Canada  growing at an alarming pace. Ack!

Since the student loan system isn’t necessarily the most straightforward, I figured a short summary post of the process might be in order.

How to get a student loan in Canada

In Canada, student loans are administered by the provincial and federal governments. This means you apply directly to them to secure funding for your post-secondary education. In some provinces, it takes only one application for both the federal and provincial student loan services, but depending where you live you might need to fill out two applications.

Many students that are just beginning their university career think that they go through their school for the student loan application process. While some universities might offer services to help you work through your student loan application, some might not. The information on how to apply for student loans in your province is available here.

While the ideal is obviously to get through school without borrowing, but as the cost of a post-secondary education rises, that becomes less of a feasible option for many students. Personally, my parents didn’t save any money for my university education and earning enough to pay for it, even though I worked throughout my degree, wasn’t possible either. Student loans can be a positive investment if money is what is keeping you from getting an education you need.

How to spend your student loan

Sometimes, your student loan disbursement will go directly to the school, and then if there’s anything left over, it will be deposited into your bank account or a cheque will be mailed to you. How you should spend any leftover money after your tuition is paid is on living expenses — don’t be like me and spend it on clothes and dinners out! I think I’d owe half of what I did if I had just spent it more carefully throughout my undergrad. While I eventually caught on to more responsible ways and saved a bit of my student loans, I could still have spent more wisely.

While a somewhat untraditional route, I encourage students to treat their student loans like income and save a portion of the funds, just as they would a percentage of their paycheque. This not only builds the habit of saving early on, it lets you graduate with some financial assets that you can then use to pay off your student loan at graduation. By saving some of my student loan money, I was able to make a $5,000 student loan payment at one point, which significantly reduced my overall balance and saved me a whack of interest.

How to pay off your student loan

Generally, immediately after you graduate your student loans enter a grace period where they’ll be accumulating interest but no payments will actually be due. At the end of the grace period, you’ll have the option to make a lump sum payment of the interest that accumulated during the grace period or to roll it into your student loan. I STRONGLY encourage you not to take advantage of the no-payment grace period and just start paying your student loans right away. It doesn’t matter if you’re not in a glamorous career or if you’re just working part-time, start paying right away. This not only gets you into the habit of making payments, it reduces your student loan balance and thus also reduces the amount of interest you pay over the term of the loan. During the grace period, I managed to pay down $2,500 of my student loan debt — more than 10% of the total balance! It may not seem like it made a huge difference but I certainly appreciate that my current debt isn’t $2,500 + interest now.

Likewise, making the minimum payment will get you nowhere. You should always make more the minimum payment on your loans. In fact, you should pay as much as you can while still meeting your other financial obligations and not stretching yourself too thin (and in my opinion, also keeping some semblance of balance and fun in your life).

If you borrowed from multiple lenders, particularly as private loans as opposed to government ones, it might be worthwhile to consolidate your debts at a lower interest rate, and this site provides some information on how to go about it. Ultimately your main goal should be to pay off your student loan as quickly and painlessly as possible.

Long story short: borrow as little as you need and pay it off as quickly as you can.

Filing my income taxes this year was both easier and harder than last. Easier because I only had to receive a T4 from a single employer instead of multiple, harder because I had to claim all my blogging/writing as self-employment income. I actually had to pay taxes this year for the first time ever, which meant that while I got a large tax return, I definitely didn’t get back everything I paid in! The trials of being a contributing citizen.. Oh well. Nevertheless, I did benefit financially this tax season and I’m happy to report that I put it to good use. When my income tax refund was deposited into my bank account, the first thing I did was make a $3,100 student loan payment.

me doing something right, and the PF community cheering me on

 This means my new balance owing is below $5,000 — which is less than 1 month’s gross income for me.

Craziness. The $4,941 remaining doesn’t even feel like that much owing — and why would it? That total used to be over $20,000. With over $16,000 already paid off, the remainder of my student debt almost looks like petty change.

Well, not really, but it’s certainly easier to swallow.

If you’re interested in following my student loan payoff progress, you can always check out my charts HERE.

I’m a BIG advocate of using your income tax refunds to pay down your student debt. Because I paid for my university education, I racked up tons of tuition credits that gave me significant tax breaks in 2011 and 2012. This is the reason why my income tax refund was so big. It only makes sense to use your large income tax refund that you received solely because you went to university, to pay down the student loans you borrowed to attend university.

Essentially you paid the government money (because most universities are government-funded institutions in Canada, so paying tuition is paying the government), then they pay it back to you in your income tax refund, and then you pay the government again by paying down your student loan.

Ok, so the government wins monetarily but you’ve got this great educated mind now. Huzzah!

So next year I probably won’t get an income tax refund, but I won’t have any student loan debt either. My plan to tackle the remaining $5K I owe is simple: just pay it off.

February and March are spendy months for me this year because of booking various work and personal trips. Once the dust settles for flights, hotels and rental cars, all my money can be funnelled towards the student loan. I’m not a huge fan of deprivation in the name anything, but debt-freedom is a worthy cause and at this point, I wouldn’t have to suffer for long. Besides, if I ever get really annoyed, I can always do a gigantamous transfer of funds from savings and wipe out my remaining debt.

I’m always a sprinter at the finish-line, even if I strolled and lolly-gagged the rest of the race up until that point!

In any case, I’m almost done, guys! I’M ALMOST DONE.

For many of us, college is our first real experience with personal finance. We are on our own, paying our own bills and making our own mistakes. Some really freaking annoying people manage to escape the experience without any debt, credit scores above 800, and impressive savings accounts. And then there are the rest of us…

As the self proclaimed poster child of financial screw-ups in college, I thought I would explain how to successfully wreck your finances in just four years, ala Kate Hudson in How to Lose a Guy in 10 Days.

1. Don’t bring any money to college. Seriously, don’t save a single cent in high school. Spend it all on Taco Bell.
2. Apply for a credit card. C’mon! You make a whopping $450 a month! Plus, you get a free pizza when you apply. Don’t worry, you won’t use it…
3. Max out said credit card on spray paint. That’s right, spray paint. Because you have to personalize the weird décor you bought for your first apartment. You’ll totally want to have this completely immature furniture well into your thirties. Or you’ll get sick of it after a year and throw it all away.
4. Apply for another credit card. You know, in case you need more spray paint. Not travel, not designer clothes. Spray paint.
5. Take all the extra loans the school offers you. After all, you need to pay those credit cards off. And it’s way better to delay the problem than actually deal with it.
6. Don’t save any money. None. Just get lucky and find a real job before you graduate. (Whew, glad that ended up working out!)

And just for good measure…

1. Decide to go to grad school on a whim. Borrow an additional $10,000 to take half your MBA classes and then come to your senses.

If you carefully follow these seven steps, you could wreck your finances too! It takes four short years and a huge lack of discipline, but if I can do it, so can you! You can end your college career financially crippled and clueless. No worries though, you have six months before the reality of $40,000 in student loans hits you…

Once you finally realize that you need to take control of your finances, take comfort in knowing that there is an entire community out there going through the same thing: the PF blogosphere. An amazing group of people (especially that bad ass chick Bridget from Money After Graduation) paying off debt, building up savings, and investing for their futures. They will inspire you to achieve financial freedom and you will start turning it all around. It almost makes the whole process worth it…almost.

Say you borrowed $25,000 for school. Or you have $25,000 of debt spread over multiple credit cards, and maybe a car loan. How many years are you stuck with that debt? It depends how many years it will take you to gross a couple hundred thousand dollars.

If you’re paying 15% of your income towards debt (which isn’t a bad amount!), you’ll need to earn more than $165,000 to pay it off (and that’s not even including interest). This can take 3 to 5 years or more depending on your income.

Yes, really.

$25,000 / 15% = $166,667

But wait! That’s your net income! Being taxed at ~20% like myself? You’ll now need to gross about $208,000 in order to pay off your $25,000 debt using 15% of your net income. Again, not counting for interest, so you should aim even higher.

$166,667 / 80% take home pay = $208,333

Ouch.

The more debt you have, the more you’ll have to earn to take care of it. Yes, it’s depressing, but maybe it can also be motivational. The greater percentage of your income you put towards debt, the faster it will disappear. There are a few things you can do to make the debt repayment process easier:

• Consolidate your debts at a lower interest rate. You might qualify for a better interest rate that you’re currently getting. Check your free credit score to see where you stand, then negotiate a rate with your creditors. I’ve always been careful to pay bills on time and hold different kinds of credit (regular bills/contracts, student loans, credit cards, line of credit) to keep an excellent credit score to ensure I get the lowest rate.
• Increase the frequency of payments. Paying $50 bi-weekly will save you more interest than $100 once per month. When my employer switched from monthly to twice-monthly cheques, the first thing I did was automate debt payments every payday.
• Or increasing the amount you pay. This is both the most difficult and most effective step. Increasing your payments will make your loan go away faster and reduce the overall amount you pay. This is my least favorite step since it means removing cash from my disposable income, but until you’re debt-free, your money isn’t really yours anyway.

No matter what you choose, getting out of debt is rarely a good time — but it’s better than staying in debt forever, so do what you can now so you don’t have to do more later!