Grace Period Interest on Student Loans

After completing your post-secondary education, the government gives you six months to secure employment as your debt begins to accumulate interest. During these six months, you are not required to begin making re-payments, but interest charges DOES accumulate on the federal portion of your loan and will be added onto your principal amount at the end of the six month period. During this time, you are not eligible to apply for Repayment Assistance. 

Many students feel like the amount of interest accumulated during their grace period is insignificant and so, believe that adding this grace period interest amount at the end of six months would not make much of a difference in the long run. This is absolutely not true, and it is very important for new graduates to pay off their grace period interest before the six month period ends (if they can), even if you plan on applying for Repayment Assistance after the six month period.

Why is this so important? Well, it’s very simple. The average new graduate will take a little over 7 years to 10 years to pay off their student loan in full. With that said, a student that has accumulated $400 in interest during their six month grace period and decides to add this amount to their loan principal can easily increase this $400 amount to four digit figute over the life of the loan. In addition to this, every year that this interest is not paid off, it is added to the principal amount before calculating the new interest. This interest on interest concept makes a small dollar amount very daunting in the long term.

What you might want to consider doing is paying off your grace period interest before the end of the six months (this amount is pre-calculated for you and can be found by calling the National Student Loan Services (NSLC) or logging on to your online account at https://nslsc.canlearn.ca/eng/SignOn.aspx). If you need to do odd jobs to get the money together, do it, it is worth it in the long run.

Once your six month period is coming to an end, contact NSLC and apply for Repayment Assistance. Based on your circumstance, the government may pay for a portion or all of the interest on your monthly student loan for the following six months. To see how paying off your grace period interest versus not paying off your grace period interest affects how much you will owe over the life of your loan check out the Loan Repayment Estimator at the OSAP website http://tools.canlearn.ca/cslgs-scpse/cln-cln/40/crp-lrc/af.nlindex-eng.do.  

I found this financial tool very helpful because it gives you a great perspective on how a small change in loan amount will affect your debt total in the long run.

 Ontario portion of your Integrated Student Loan:

Another incentive to paying off your six month grace period interest after graduation and before your loan goes into repayment is that the grace period interest is only calculated based on the federal and not the provincial part of your student loan (at least in the province of Ontario ). Although the government of Canada has integrated many of the loans into one amount, my guess is that this was probably done to make it easier for the debtor to contact only one creditor at the time of repayment. However, this does not mean that at the time of loan disbursement, the funds were only coming from one source. It is still common practice for students to receive both a federal and provincial portion of their loan. Contact your local student financial assistance office at your school or the National Student Loans Services (1-888-815-4514) website to get a break down of the federal and provincial portions of your loan during each academic term that you received funding from OSAP. 

Only being charged interest on the federal portion of your loan during your grace period means less interest for you to pay in those six months, and more money in your pocket. Once the six months lapses, interest charges are calculated on both the federal and provincial portion of your loan.

Did You Know?: A Seven Part Series on Understanding Your Student Loan

The next seven articles are largely geared towards new graduates who are/ or will soon begin to repay their government issued student loans. Although this information is specific to the province of Ontario, most provincial governments adhere to the same policies/rules when it comes to student loan repayment. However, you should still check your provinces regulations to see if this applies.


(1) Why you should pay back some of your student debt while you are still in school:

If you are able to make some extra money while you are still in school it may be wise to start repaying your debt before you graduate. Why? Because interest on your debt is not accumulating when you are full time post-secondary student. All you owe is the principal.


OSAP allows you to earn $103 a week (or $412 a month or $1,648 a semester) without it affecting your student loan amount the following semester. This may not seem like a lot at first but if you saved $1,648 every semester for 4 years (not including summer classes), you would have $1,648 X 2 semester X 4 years = $13,184. This does not even include the odd year you decided to take summer courses, or even any interest in savings. If you put this money in an ING savings account at 2%, the savings can be beneficial over a four year span. So that is over $13,000 you could use to pay towards your student loan without even affecting how much OSAP you could get while you’re still in school.
Of course if you want to earn more than that, even better. Just make sure you weigh the cost and benefit of balancing school and work and not to mention how making more money while in school may affect your OSAP loan the following semesters. However, in the long run, the less you owe, the faster you can think about other investments when you graduate, like a new home or contributing in various investment vehicles. This will be a later topic.


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What is eINFO?

I thought I would start my first informational blog on educating others about a 'one-stop' website for information on all Ontario universities scholarships & awards, residence and program information.  This website is called eINFO and can be found by clicking here:

 http://www.electronicinfo.ca/en/

Here are some of the benefits of using this website:

• The site uses a program wizard that consists of a filtering system that not only allows you to find a post-secondary education program easily, but it also allows you to compare similar/different programs offered at different universities in Ontario. This information is presented in a comparative table that is to understand.
• The site allows you to search scholarships & award information by schools, annual dollar value and application requirement (or any combination of the three). So if an entrance scholarship is a critical factor in choosing where you want to go to school, you can see where your GPA will give you the biggest monetary reward.
• Another key feature this site offers is residence information. Find out the cost of on-campus living, meal plans etc, as well as compare this price with other universities in Ontario.
• Lastly, this site allows you to save your searches for future use, once you create a username and password.  

Why is this information important for reducing your debt? Well I believe in a preventive approach (as appose to a reactive approach) to financial planning. In other words, if you can avoid a situation that will put you further into debt, it is much better than trying to get out of debt after the fact. Knowing as much information as you can about the financial opportunities and expenses about the post-secondary school you wish to attend can save you hundreds to thousands of dollars over the next 4+ years of your education

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About Me

I am a recent  grad  who managed to rack up a total of $6,000  is credit card debt and $63,000  in government student loan debt.  This total includes funding for both undergraduate and post graduate  degrees.  It is understandable to assume that as a business graduate (accounting, then general MBA) I should have a sound foundation in personal finance (specifically debt finance).  But alas, like most graduates and most in society, $63,000 can get you a whole lot of education yet it is amazing how much the hallowed halls of collegiate education fails to teach you.


Many business students are able to  calculate the financial worthiness of  companies large and small, but are unable to recall how the last $40 in their wallet was spent. I know this because that was me circa. undergraduate – postgraduate. Like the 50%+ Canadians (http://www.statcan.gc.ca/daily-quotidien/100129/dq100129c-eng.htm) that use OSAP to assist in funding theireducation, you probably weren’t informed about  the available options (which I will begin to mention in future blogs) while in school and the responsibilities that come with using debt as a financing tool.


High student debt and an overinflated salary expectation results in a reality check for most students, at least it did for me. Granted the current jobs market isn’t like it was five years ago, but jobs were available in many recessions before this one and will be available after. So, competiting for work with other graduates shouldn't be your only focus. Sometimes your biggest competitor is the lender who loaned you that credit card or student loan.

For this reason, I have decided to create this site. With the goal of not only educating myself, but hopefully others.These articles will be geared towards post-secondary students and recent graduates. The way I see it, it's never too late to get serious about paying down your debt and building wealth, and the best time is now.

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