In Canada, You Don’t Have to Repay Student Loans Until You Make $25K/Year

November 1, 2016
by Lisa Rowan
Writer and Producer
Income-based student loan repayment

Recent Canadian graduates entering the job market may have one less thing to stress about starting Nov. 1.

The government is changing its Repayment Assistance Plan, which delays student loan repayments until the borrower makes a certain salary.

Now, students won’t have to start repaying their loans until they make at least CA$25,000 (US$18,916) per year.

“This will allow students to complete their studies with the confidence of knowing that debt repayments will not become an overwhelming burden,” a statement claimed. The old amount was CA$20,210 (US$15,291).

Federal student loans in Canada offer a six-month non-repayment period after graduation where no payment is required, but interest still accrues. If your payments are delayed due to low income, the government may cover some of the accrued interest.

The median first-year, entry-level salary for employees with a bachelor’s degree in Canada is CA$39,996 (US$30,276), according to data from PayScale. That may seem pretty far from the threshold for repayment assistance, but it doesn’t include information about how long it normally takes a new graduate to find their first job after college.

That time of uncertainty, for many students, can feel worse than the anxiety of waiting to get accepted to college in the first place.

Why Can’t the U.S. Have This Rule?!

Income-based student loan repayment
muharrem ?ner/Getty Images

Here in the United States, some loans have a grace period of six months before you need to repay them, but others require you to start repayment as soon as they pay your tuition check.

Delayed repayment is offered through deferment, which is available for up to three years “during a period of unemployment or inability to find full-time employment” or “during a period of economic hardship.” The government sometimes pays the interest that accrues on these loans during your deferment period.

Meanwhile, income-driven repayment plans typically reduce your monthly payment to 10% of your discretionary income — that’s the difference between your salary and 150% of the poverty threshold for your family size and state. The 2016 poverty line for a household of one in the contiguous United States is $11,880, so 150% of that is $17,820.

Say you live in Florida, you have a $20,000 loan with a 6.8% interest rate, and your yearly income right out of school is $18,916 (the equivalent of the Canadian income threshold). Signing up for income-based repayment would reduce your monthly payment to just $10 to $14 per month, according to the federal loan repayment calculator.

It’s not as good as Canada’s plan, which just says, “No way, we’ll cover you until you’re earning $25K a year.”

But it’s still something to help get you through, so it might be worth asking for help.

We’re All Still Struggling With This

None of the repayment options seem fair if you’re looking at a huge student loan balance. Unless the U.S. decides to throw us all a bone right after graduation, it’ll be up to you to decide which repayment approach is right for your loan bundle.

But it’s also worth investigating ways to have your student loans forgiven.

If you choose a career in public service, a large portion of your loans could be wiped out after a certain number of years working in your field. And some companies are even starting to offer student loan repayment as an employee benefit.

Your Turn: Did you ask to defer payments on your student loans?

Lisa Rowan is a writer and producer at The Penny Hoarder.

by Lisa Rowan
Contributor for The Penny Hoarder

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