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.
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