How to pay back OSAP in Canada

Posted on 20 June 2022

Written by Jeff Adiken

There are many wonderful things to celebrate about graduating from your post-secondary studies. After years of studying and hard work, you are finally free from your studies and revision, and can begin the next chapter of your life. The world is your oyster. Perhaps you have been working towards a vocation or beginning to look for the first job of your career. The downside of graduating from your studies, sadly, is often the huge amount of student loan debt that comes with it. In this article, we discuss the Ontario Student Assistance Program (OSAP) and how to back OSAP as simply and quickly as possible.

What is OSAP?

OSAP, or the Ontario Student Assistance Program, is a program that was created to help any students in Ontario with funding their post-secondary education. There are two types of OSAP funding – grants (which do not need to be paid back), and also student loans, which on the contrary do need to be repaid. When you go to apply for OSAP, calculations are carried out to determine how much grant and loan you are eligible for. In some cases, you may have sufficient OSAP grant so that you do not need to take out the loan in addition. OSAP grants and loans can be used to cover any expenses involved in studying, from tuition fees to accommodation to equipment and textbooks. Although grants do not need to be repaid, this could change if your situation does. For instance, if you withdraw from your studies or have entered incorrect information on your application, you will be expected to repay any grant.

When do you need to repay OSAP?

Thankfully, there is no expectation to repay OSAP as soon as you graduate from your studies. There is a grace period of six months from graduation during which you can look for a job. In this grace period, you will, however, begin to accrue interest on your student loan. After this grace period, you will need to start repaying your OSAP. Any payments you make will go to the National Student Loan Service Centre (NSLSC). If you are going to return to school, for instance to study for a Master’s degree, you will not need to begin remaking your repayments until your next studies are complete.

How to pay back OSAP

Paying back OSAP can be broken down simply into a few different steps. Generally speaking, it is simple to do provided you have all the information you need beforehand. Here are the steps to paying back OSAP:

Graduate full-time education

Of course, the first step is actually leaving your full-time education by graduating your studies. From graduation, you will have six months’ grace period before you need to make your first payment. It is important to note that despite this grace period, you will begin accruing interest upon graduation. For this reason, if at all possible, it is a good idea for you to begin making any payments you can in order to keep on top of reducing the principal of your debt instead of just the interest payments. At this point, you are likely looking for a job – be it a graduate role or a part-time job just to begin making these payments. This will make your life much easier further down the line and means you can start chipping away at your student debt from the get-go. It is worth noting that between April 1, 2021 and March 31, 2023, Canada will not be charging interest on the federal part of an OSAP loan.

Work out the monthly student loan payments you will need to make

In order to get your student loan debt and finances in check, you should calculate the payments you will need to make each month. It is a good idea to use the OSAP repayment calculator to figure this out. Often, OSAPs are split into both federal and provincial components. Each has its own interest rate – the federal part has a prime interest rate, while the provincial part has an interest rate of the prime rate plus 1%. This will determine the payments you need to make each month, dependent on the split of your student loan between federal and provincial. Interest rates will likely change while you pay back OSAP, but your monthly payments will not change – the overall balance of your student loan debt will alter instead. Now you know roughly how much your monthly payments will be, you need to learn how to budget. This is crucial in ensuring you have enough money set aside to make your repayments each month.

Familiarize yourself with your NSLSC account

You should already have an NSLSC account as it is required when requesting funding when you first apply for a student loan. You should therefore be able to login to your account. This is helpful in giving you an overview of your student loan balance, your statements, and any personal information associated with your account. Through the portal, you can also apply for repayment assistance and ask for changes in your repayment terms, like extending your repayment period. During your grace period, you will also receive a package from the NSLSC. This will let you know the number of payments you will need to make, when to make your first payment, and also the interest rates on your loan.

Repay your student loan

Once your grace period is over, you need to begin repaying your student loan debt via your NSLSC account. The best way to do so is by setting up a pre-authorized direct debt so that you do not need to remember to make your payments each month, and they are instead made for you automatically. It is also possible to make one-off lump sum payments to pay off your student loan faster. When it comes to how to pay back OSAP, it is also possible to pay via phone, cheques, and bank drafts if preferred. On average, it takes just under ten years to pay back an OSAP loan. You can reduce this time period by making overpayments, or you can extend the period by up to around five years if needed. Once you have made all your necessary payments, you will receive a notice from the NSLSC and you will become officially debt-free.

Is it possible to extend your OSAP grace period?

In exceptional circumstances, you may be able to extend your grace period to allow you some additional time before having to make your OSAP payments. It is possible to extend your OSAP grace period to a year if you own or co-own a business or Ontario, or if you work or volunteer at a non-profit organization. In order to apply, you simply need to submit an application to the NSLSC within the initial six month grace period.

What if you cannot make your OSAP payments?

If you do not make your OSAP repayments for 270 days, you will officially be in default. This means that you have failed to pay your debt, which leads to further consequences. It can mean your student loan debt is reported to collection agencies, which could lead to a wage garnishment. You may find it difficult to secure additional credit until your payments are back on track, which includes car loans, mortgages, and credit cards. Your student loan will continue to build interest in the meantime, and you may not be able to get your income tax refund or HST rebate. It could also have a negative impact on your credit score.

How do you get help with your OSAP payments?

Thankfully, there are a number of options if you need support with making your OSAP payments. Firstly, you can apply for the Repayment Assistance Plan (RAP) through your NSLSC account. If you meet the eligibility criteria, you will receive a revised monthly repayment figure. This is typically based on the income of your family, the size of your family, and the remainder of loan you need to repay. Do note that this plan only lasts for six months, so you will need to reapply if you need further support once it has finished. For the Repayment Assistance Plan, generally speaking there are two stages – interest relief and debt reduction. Interest relief is available for up to 60 months, or until you are out of school for ten years, whichever is first. Debt reduction then comes afterwards – you will make either no payment or an affordable monthly payment depending on your income. You can also get support from the provincial and federal governments. As your salary increases, so too will your student loan payments although they will be limited to no more than 20% of your family’s income. In fact, if your gross family income falls below the threshold, you will not need to make any payments at all. If you have a disability, you can gain additional repayment assistance.

How can you get debt relief for student loans?

If you are struggling to make your student loan debt payments, you should book a free consultation with a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals legally able to file all forms of debt relief in Canada. They can support you with gaining student loan debt forgiveness, and helping you to repay your student loan as quickly as possible. At Spergel, we have been helping Canadians begin a fresh financial future for over thirty years, including assistance with student loan debt. If you completed your studies seven or more years ago, we can review your options for clearing or reducing your student loan debt, including debt consolidation, a consumer proposal, and bankruptcy. We will take the time to review your financial circumstances and make recommendations on the best course of action for you to take. Even if you have had your student loan for less than seven years, we can consider debt relief for your other unsecured debts to try and free up your budget to make your student loan repayments.

If you are wondering how to pay back OSAP, book a free consultation with one of our Licensed Insolvency Trustees at Spergel. We have been helping Canadians to gain debt relief from student loans for over thirty years, and we can help you too. The sooner you tackle your situation, the sooner you can begin a life free from financial stress. Reach out today – you owe it to yourself.

Jeff Adiken

Jeff Adiken

Jeff Adiken is a Certified General Accountant and Chartered Insolvency and Restructuring Professional with over 18 years’ experience as an LIT (Licensed Insolvency Trustee). He also manages all of Spergel's personal insolvency offices and is our resident expert on credit card debt and debt-free living. When his 'manager hat' comes off at the end of the day, Jeff is happiest spending quality time with his family at home.

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