As the summer fades into fall, the end of mortgage deferrals isn’t the only payment vacation that will soon be over for hundreds of thousands of Canadians. It will also be the end of the six-month freeze Ottawa imposed on repayments and interest accruing on federal student loans due to the COVID-19 pandemic.
The Canada Student Loans grace period, to be exact, will be over on Sept. 30.
But what does that means for graduates who are still just barely scraping by — if that — in an economy that has only partially recovered from the spring lockdowns?
READ MORE: Canada adds 246K new jobs in August, unemployment rate falls amid coronavirus
So far, Canada has recouped around two-thirds of the jobs it shed in March and April, with the labour market still 1.1 million paid positions short of where it was in February. Young workers have been among the hardest-hit by the economic ripple effects of the health crisis.
And employment in the accommodation and food services industry, an essential source of jobs for recent graduates who haven’t yet found full-employment in their field of study, is still more than 20 per cent lower than it was just before the pandemic, according to an analysis of Statistics Canada data by job-search company Indeed Canada.
READ MORE: Higher prices? Non-refundable reservations? How COVID-19 might change restaurants
Even those who have jobs may not be earning as much as they once did, as recent data shows an increasing share of Canadians are working part-time hours because they can’t find full-time employment, according to another Indeed analysis.
At Hoyes Michalos, an Ontario-based debt-relief firm, Scott Terrio says he’d normally see one in five clients whose debt includes student loans. But over the last five months, he says he’s seen “a lot more” struggling borrowers with student debt.
Still, the good news for struggling graduates is that the government is quite a generous and forgiving lender when it comes to student debt, says Bridget Casey, founder of Money After Graduation, a personal finance blog.
“What most people probably don’t know is you still have an option to modify your student loan repayment plan or even to continue leaving at least your federal student loan payments suspended,” Casey says.
Know your repayment assistance options
If you’re struggling to make your student loan payments, you can apply to have Ottawa or your provincial and territorial government chip in through the Repayment Assistance Plan (RAP).
You can send in a request for help as you start to repay your student loans. If approved, you may be allowed to pay just a fraction of your regular payments or make no payments at all. In the meantime, Ottawa and your provincial or territorial government paying the interest your revised payment does not cover.
READ MORE: Nova Scotia announces $8 million in student loan forgiveness in 2020
If your family income falls below a certain amount per month, you may be eligible to make no payments for a period of six months. Currently, the income threshold for making zero payments on Canada Student Loans is $2,083 a month pre-tax for a single person, according to the government’s RAP web page.
You don’t have to be fresh out of school to access RAP either. As long as you’re still paying off your student debt, you can join in at any point.
The only catch is RAP is an opt-in program — you have to know about it and show you’re eligible. You’ll also have to reapply every six months.
“The thing that you absolutely don’t want to do is miss a payment and have it negatively impact your credit score,” Casey says.
Missed payments will also make you ineligible for repayment assistance. You must be up-to-date on your loans to access the program.
READ MORE: How Canadians go from student debt to default
Still, one potential concern when it comes to applying for RAP this fall is processing backlogs, Terrio says.
Terrio worries about what might happen if graduates apply for relief en masse right after Sept. 30.
“It’s just it’s an artificial, arbitrary deadline that never happens,” he notes.
Casey recommends getting your paperwork in order now if you’re planning to apply for RAP as soon as the current payment holiday is over.
Tweaking your loan
Here’s another handy feature of student loans — you can lower your monthly payment amounts by extending your loan term, the period over which you’ll be repaying your debt.
You can change your payment amount online through your National Student Loans Service Centre account.
The only catch is stretching out the repayment period will likely increase the interest you’ll pay over the life of the loan.
READ MORE: How quickly should you pay off your student loans? Two money experts share their stories
Also good to know: You can change the day of the month upon which your payments are due. This allows you to make sure your student debt bill hits after your paycheque comes in.
What about debt consolidation?
If you’re juggling multiple loans, you may be thinking about consolidating them into a single line of credit. But both Terrio and Casey said it’s unlikely borrowers would be able to find a better interest rate at a private lender with interest rates so low.
Even if you did, the disadvantage of taking your student debt to a private lender is you lose access to government repayment assistance, Casey notes. You’ll also lose the ability to claim the interest on your student loans as a tax deduction, she adds.
“I would not consider that a line of credit to consolidate student loans,” she says.