How much student loan debt is too much?

Posted on 14 June 2022

Written by Samantha Galea

Student loan debt is undoubtedly a growing problem across Canada. Many Canadian students are not always clued up as to what exactly they are agreeing to when they take out a student loan, which leads to problems further down the line. Of course, a post-secondary education is extremely important for many, opening doors and unravelling a lifetime of opportunities. But how much does it actually cost? And how much student loan debt is too much? It all depends on who you ask. It is very much dependent on how much each borrower wants to risk, their goals, and their lifestyle. So, how do you decide when a student loan debt becomes too much? Although it may not seem like a big deal when you first take out a student loan, when it comes to making repayments, you could find yourself in hot water. In this article, we discuss how much student loan debt is too much, and how you can address any struggles when making repayments.

How much student loan is too much?

A general rule of thumb when it comes to the amount of student loan you should borrow is to borrow less than your first graduate salary. If you limit your student loan debt to whatever you expect to earn in your first year’s salary, you should be able to repay your student loan debt in the average timeframe for repayment in Canada of 9.5 years. If you borrow any more, you could well struggle to make your student loan payments and may require an extended repayment timeframe or a reduction in repayment cost which could take many more years to repay. Although it is difficult to estimate exactly what you can expect to earn in your first graduate job, you can get a good idea by speaking to your tutors and using LinkedIn Salary. Using this tool, you can discover the average wages for different roles and career paths in your field to give you an estimation.

How can you calculate your monthly payments?

Before you take out your student loan, you should work on calculating what your monthly repayments are likely to look like. This is to help you prevent over-borrowing on your student loan. If you know what to expect when it comes to your monthly repayments, you can establish how this will look when taken from your monthly earnings in your first job. It can help to make your student loan payments seem a little more realistic, and have you thinking about the future. For example, if you are studying to be a doctor or an accountant, a higher monthly student loan payment may be feasible, although it could be more difficult for a musician or an artist. In order to calculate your monthly student loan payments, conservatively use an average graduate salary and base your monthly payments across 9.5 years, in line with the average time it takes a Canadian to make their student loan repayments.

How can you borrow less student loan?

As well as considering what you can realistically borrow for your student loan, there are some strategies you can implement to try and borrow less. For instance, it is worth comparing the cost of courses from college to college. Perhaps there are additional grants and scholarships available at some colleges which you are applicable for, but not at others. This may help to bring clarity to you on the best college for you, and the best deal. From this point, it is then important to only borrow what you need when it comes to a student loan, and not borrow further amounts for additional yet unnecessary costs like vacations or luxury items. The more you can cut back when it comes to the initial borrowing phase, the easier and more comfortable it will be for you to repay later down the line. If it is possible for you to take on part-time or temporary employment while a student, this too could prevent you from borrowing even more.

Is it possible to get an education without student loan debt?

It is of course possible to go to college without taking on a hefty student loan, but this will involve some meticulous planning. In order to reduce the overall amount you owe, or to avoid a student loan entirely, you will likely need to save for some time. Perhaps you are still in high school, and have time to consider how to save money for college. You may choose to work as much as you can throughout the school holidays and save everything that you earn to go towards your tuition. If you are a parent, you could look into education saving schemes in order to save for your children. You should also research any bursaries or additional grants that you may be able to work towards in order to reduce or cut educational costs.

What if I cannot afford my student loan?

Student loan debt has some specific rules, so it is important to understand what you are taking on when you first apply for the loan. For some people, making your monthly repayments can become a struggle, but thankfully there are options. So, how much student loan debt is too much, and what do you do if you cannot make your repayments? Your first port of call should be to speak to a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. At Spergel, we will look at your financial situation and recommend the appropriate action to take. If you have been out of your studies for over seven years, you may be eligible to file a form of debt relief like a debt consolidation loan, or a consumer proposal or bankruptcy. Even if you have graduated within the last seven years, we can examine your finances and it could be that a form of debt relief could ease any other unsecured debts you have in order to free up your finances for making your student loan repayments more comfortably. At Spergel, unlike other bankruptcy firms, you are assigned your own trustee to walk you through the entire debt relief process instead of being passed from person to person.

If you have more questions on ‘how much student loan is too much?’, or are struggling with making your student loan debt repayment, book a free consultation with Spergel. We will review your financial situation and work with you to run through your options to gaining debt relief. We will walk you through each of your options. The sooner you reach out, the sooner we can guide you on the pathway to debt relief.


Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

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