For many students, recent graduates and young people in general, the COVID-19 pandemic has been incredibly stressful, especially when it comes to finances, and *particularly* when it comes to money and school. Between juggling university fees, stressing about paying off student loans and factoring in general expenses (all during a global pandemic), budgeting and financial planning are more important than ever.
With that in mind, we spoke to two financial advisors to get the rundown on how you can benefit from federal assistance programs and manage your money this upcoming school year.
Do I have to start paying back my student loans?
Many students rely on summer jobs and campus positions to save enough money to keep up with their student loans and university fees. Unfortunately for many students, having a job over the summer, and thus making money, was out of the question due to COVID.
Keeping these affected students, and recent graduates, in mind, the Government of Canada suspended the Canada Student Loans and Canada Apprentice Loans deadline, moving it from March 30 to September 30. This means that students who initially would have been required to begin paying back their students loans in March won’t have to do so until September 30. (Bonus: The government extended the deadline without collecting any interest and has halted any other pre-authorized debits until this deadline). Students who will be returning to school still don’t need to worry about paying off their loans until the end of the academic year (even until six months after thanks to the grace period), while graduates or students not returning to school this year need to start paying on September 30.
Pamela George, a financial literacy and credit counsellor and former financial aid officer at Algonquin College in Ottawa, Ont., says the most important thing students and new graduates must do when it comes to their payments is simply take action. “You need to make the minimum payment, or at least the interest, and you need to do it on time—if not, you’re going to go into default (which can affect your credit and future loans),” George says. “I’m big on not missing your payments. As a former financial aid officer, I saw so many students do exactly that and it takes so much work to get out of that cycle.”
If you can’t make your minimum payment, read on for options!
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Can I receive an additional extension on my student loan payments because of COVID?
If you’re concerned that you may not be able to make your minimum loan payment in time, consider applying for the federal Repayment Assistance Plan. This plan assesses how much you can reasonably afford to pay based on your income, and depending on your situation, it can either reduce or eliminate your monthly payments for a period of six months. (Hot tip: If you’re still unsure how much you’d be qualified to receive, plug in your information into the federal Student Financial Assistance Calculator).
Still not sure if you’ll be able to make your payments even with the assistance plan? Don’t panic, because you have a few options. To start, contact the National Student Loans Service Centre (NSLSC) or your provincial loan provider to figure out the best plan to get back on track. A few options include adjusting your interest rate and reducing your monthly payment to avoid missing it entirely. If you’ve missed nine months of payments, your student loan will be automatically sent to the Canada Revenue Agency (CRA) for collection, which means you’ll no longer receive student aid. In order to get back on track from there, contact the CRA to get your loan up to date.
“There are options for customizing your repayment terms; for example, paying a smaller amount over a longer time period. And there are even additional options based on individual circumstances, such as students with disabilities,” says Liz Schieck, a financial planner at the Toronto-based New School of Finance. “The most important thing is to try and make your required payments on time to avoid negatively impacting your credit score. And if you’re struggling to make those payments, don’t hesitate to call them to find out how they can help.”
Which other federal financial assistance programs am I eligible for?
In addition to the Repayment Assistance Plan explained above, if you’re a graduate or student not returning to school this year and must start repaying your loans at the end of September, there are two few additional federal programs you can consider for additional financial assistance:
Canada Emergency Student Benefit (CESB)
The CESB program is for post-secondary students and recent post-secondary and high school graduates who were unable to find work this summer because of the pandemic. For each four-week period, the benefit offers $2,000 for those with a disability or dependants and $1,250 for those without. It runs from May through August, but Canadians are eligible to apply until September 30.
Canada Student Loans and Grants
If you’re looking to take out a whole new loan or grant for your schooling, make sure to check out the federal financial aid website to see what you’re qualified for, depending on your province and institution. Remember that a loan will eventually need to be paid back and will collect interest, while a grant is similar to a scholarship and does not need to be repaid.
Due to COVID-19, the federal government doubled the maximum qualifying amount for these grants from $3,000 to $6,000 for full-time students and $1,800 to $3,600 for part-time students.
Other changes include the weekly maximum student loan limit being bumped up from $210 to $350, and students will also no longer be required to make their fixed student and spousal contribution.
If you’re already receiving CERB or EI, you are not eligible for the CESB benefit. *But* if you find out that you’re not eligible after having already applied for the benefit or received it—don’t panic! You have to return the money you received without penalty. “If it was due to an unexpected change in your income or a simple mistake (i.e. you thought you were eligible but later found out that you weren’t), the government has said that they won’t be penalizing people and you can simply pay back any money you shouldn’t have received,” Schieck says. “Every individual’s situation is different, so if you’re in doubt you should just give Service Canada or CRA—depending on where you applied for your benefits—a call and talk it through with them.”
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I’m still in school and received CERB or CESB. Will that affect my ability to get a student loan?
One common question students have concerning these two benefits is whether receiving them could decrease their chance of qualifying for a student loan. While every situation is different, the federal government has broadened their loan eligibility criteria to make the process even more stress-free given that we’re in the middle of a pandemic.
That said, there is still a chance that your CESB or CERB may be taken into consideration during the application process. “When you apply for student loans, you are required to report any income you’ve earned or expect to earn during the school year—this would include CESB or CERB,” Schieck says. “This income is always taken into account when government student loan issuers decide whether someone qualifies for a loan and how much they could receive.”
“But every individual is different, and income is not the only factor they consider when processing loan applications,” Schieck adds. Other factors include family income, number of dependants, credit score, debt-to-income ratio, enrolment status and academic standing.
So, how can I make the most of my money this school year?
With all of that in mind, there’s still a lot more that students and recent grads can do when it comes to saving money and paying down loans. One of the most important tips from financial advisors? Budget, budget, budget! If you’re receiving loans or dipping into your own savings to pay for school, make sure to sit down (preferably with someone who is money savvy, or even a professional) and plan out how much you’re earning and how much you should be spending monthly.
“What I see happen often is that students receive this large lump sum of money from their loans or grants and feel this false form of wealth and mismanage it, and before you know it, it’s gone,” George says. “Get a budget and figure out or ask someone to help you properly manage it.” Schieck even recommends having a separate account for day-to-day expenses and to give yourself a weekly or monthly allowance to stay within. “It’s really hard to look at six months’ worth of money and figure out in a moment how much you can spend at the grocery store that week!” she says. “Break it into smaller chunks so that you don’t accidentally overspend.”
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In addition to budgeting, financial advisors recommend minimizing non-essential expenses and contributing to your savings. While this pandemic may have had many obvious negative side effects, one positive one for many people has been a decrease in daily spending on things like expensive public transit, Starbucks lattes and that $20 salad. Keep that saving momentum going by minimizing extra or unnecessary expenses, in whatever way is most effective for you. A few popular budgeting apps and programs that can help keep you on track include Mint, Mylo, Pocket Guard, and lastly, your personal banking app. If available, download your bank’s app to better monitor your transactions and monthly bills.
And finally, don’t forget about your taxes! Both the income from CESB and CERB is taxable, but these assistance programs are *not* deducting income taxes before paying you the way an actual employer would. That means you have to be aware of this and account for it come tax season. “It’s possible that students won’t end up owing much because of tuition credits and lower income for the year, but you still want to be aware that you could have a tax bill owing for 2020 when you file next year,” Schieck says. “If you’re able to save any of this money in anticipation of that tax bill, do so!”
When trying to figure out exactly how much to save, Schieck says that the benefit is added to the individual’s total income for the year and taxed accordingly, so it varies widely from person to person. She recommends seeking personalized tax advice sooner rather than later to plan ahead.
Most importantly, if you need help, don’t shy away from asking for it. Reach out to your campus financial advisor, a student loan representative, or anyone that you usually turn to for financial guidance. There are so many resources out there to help you get back on track with your debt and get a better handle on your spending.