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Tips for Paying Your Student Loan Faster
Make Lump Sum Payments
This is one of the fastest ways to pay off your debt. Payments made while
attending school or during the six month non-repayment period will be applied
directly to the principal of your loan first. Once you start repaying your loan, you can still make lump-sum payments at
any time. These payments, however, will first be applied to the interest you
owe from the date of your last payment. The rest will go toward the principal
of your loan.
Increase the Size of your Monthly Payments
The amount you pay over and above your minimum monthly payment is applied
directly toward the principal amount of your loan. This decreases the total
loan amount and the total interest you will have to pay. Example: If you have a $25,000 student loan, with a 5.5 percent interest rate, you
will end up paying an extra $7,555.88 in interest over the life of your loan
(total repayment period of 9.5 years). If you increase your monthly payment by only $50, you will cut the overall
interest you will pay by $1,579.65. If you pay $100 more a month, you will cut
the interest by $2,617.84. That’s saving more than 1/3 of the interest you
would have had to pay!
Government of Canada Tax Credits for Student Loans
You receive a 15% tax credit
on the interest you pay on your government student loans each year. This credit
applies to interest payments you make on both your federal and provincial or
territorial student loans. How do you get the tax credit?
The appropriate documents will be sent to you before you file your taxes.
Note: The credit
does not apply to interest payments you may make on any loans held with a
private lender (such as a student line of credit with a bank).
For student tax tips and information on tax
returns, visit the Canada Revenue
Agency webpage: http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/stdnts/menu-eng.html
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