A financial planner shares some big tips. 🧾
It's hard to move on from student life and into the very adult world of career building, budgeting, and maybe even homeownership (if you're lucky) when you're still trying to pay off your OSAP loans.
OSAP, or Ontario's Student Assistance Program, provides financial aid to students who need some help paying for their college or university fees like tuition, books, and for full-time students, it can cover costs like living expenses, too.
Luckily, Narcity spoke with Alim Dhanji, a senior financial planner at Assante Financial Management, who often speaks to students about how to tackle student loans once they leave school.
We asked for his advice on how to pay off your OSAP as smartly and as efficiently as you can.
How can I prepare to start paying off my OSAP?
While it's likely everyone's least favourite B-word, budgeting is crucial to helping you stay on top of paying off your OSAP as well as mapping out your future goals, such as buying a home or planning for your retirement.
"Once they start working, it would be important to start right off the bat with doing some cash flow," Dhanji said.
Dhanji explains that if you can get your budgeting on track you'll have cash flow left over after your regular expenses (especially since it is costly to live in Ontario).
"I know people want to spend as soon as they get out of being in school and want to buy a few things, and that's totally fine," Dhanji said. "But if they can keep their cash flows really tight and start paying back their loan — even within the [six-month] grace period — they can start chipping away at the principal, especially on the federal part of the loan. The provincial part of the loan starts to actually accumulate interest right off the bat."
Even though there is a grace period, Dhanji said you could start paying off your student loans sooner rather than later because interest does accumulate during that period of time. The average interest rate on OSAP loans is 2.75%.
That being said, the National Student Loans Service Centre announced in April 2021 that the federal government has suspended interest rates on student loans until March 31, 2023.
How can I pay off my OSAP quicker?
Paying off your OSAP quicker largely depends on how much cash flow you're making post-grad and whether or not you want to take a risk and make some investments. First and foremost, before considering how badly you want to be free of your OSAP loans, Dhanji recommends writing out your goals.
"If their goal is that they don't like debt and they don't want to have any debt, then the number one thing that they're going to work on is paying off that student loan," Dhanji said.
"A lot of people [when they] graduate say, 'I want to pay off my student loan in the next couple [of] years and then start saving for other goals, such as putting a little bit for retirement or some short-term goals and medium-term goals," Dhanji continued. "Their goals would first have to be outlined, and then they can allocate how much they want to set aside towards those goals."
What about investing? Can I do both?
If you're comfortable with risk, Dhanji says you could consider creating a balanced portfolio and invest. "If that balanced portfolio can provide a better rate of return than the interest you pay on the student loan, then that's a good option too for somebody who can take on a little bit more risk," Dhanji said. "There's a little bit more involvement with that in terms of [having to work] with maybe a [financial] planner or just trying to have the knowledge or resources to be able to do that."
If you need help planning out how much you'll need to allocate per month, OSAP has a calculator that can help you estimate the monthly fee you need to pay in order to work it off completely in the time frame you have in mind.
What if I'm just making minimum wage?
Dhanji recommends sticking to your budget and at least make your minimum payment to the student loans.
"You don't want to go into a position where you haven't made a payment," Dhanji added. "That could potentially impact your credit."
"If it impacts your credit, that'll impact the ability for you to eventually purchase a condo," Dhanji continued, providing an example of what could be a possible long-term goal. "Then it could impact your ability to get a preferential interest rate when you're getting a mortgage."
But if you can't even make the minimum payments, Dhanji recommends speaking to the student loan service office to see what options are available where they could potentially extend your loan out to make payments a bit lower.
This interview has been condensed and edited for clarity.
This article's cover image was used for illustrative purposes only.
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