Students are increasingly taking on larger debt loads to help finance the rising cost of post-secondary education. A recent survey by Bank of Montreal found 58% of students expect to graduate at least $20,000 in debt, while 21% will graduate more than $40,000 in debt. I recently appeared on The Pattie Lovett-Reid Show to discuss student debt – here are a few tips to be debt-free sooner.

1. Live Frugally

Just because you can afford to go out and buy an expensive house and a fancy car, that doesn’t mean you should. Make paying down student debt a priority. If you are burdened with student debt, continue to live like a student even after graduation – save on rent with roommates or live with your parents until your debt is under control.

2. Develop a Budget

For most students, college and university is the beginning of the road to financial freedom. It’s crucial for students to watch their discretionary spending and develop a budget. Spending $3 a day at Tim Hortons may not seem like a lot, but it adds up to $90 a month. A budget is a great way to watch spending. If you know what your fixed costs are (rent), you can watch your discretionary spending and put the rest towards paying off student debt.

3. Pay Yourself First

Setting up an automatic payment plan is a another way to be debt-free sooner. The money comes right off your pay cheque before you’re tempted to spend it. Set up is easy – create a budget to figure out how much you can afford to put towards debt and have the funds automatically deducted off your pay.

4. Land a Well-Paying First Job

Remember why you attended college and university in the first place. Landing a good first job is key to paying off student debt. Internships are a great way to develop relationships with potential employers prior to graduation. Although your final year at school may be hectic, start applying for jobs at least 6 months prior to graduation and visit your school’s employment centre to fine tune your resume. Once you land your dream job, increase your loan repayment amount yearly with salary increases and use bonuses as lump sum payments.

5. Avoid Debt in the First Place

Why be in debt when you don’t have to be? If your course load permits, part-time and summer positions are great ways to pay down debt before interest starts accruing. You can often gain well-paying work-study positions on campus. Bursaries and scholarships are also great sources of funds. Make lump sum payments while you’re attending school – they will have the greatest effect, by going directly towards principal.

6. Know your Loan Payment Terms

Understanding your loan payments terms is crucial for paying off your debt sooner. It’s important to know the total amount of your loan, interest rate, monthly payment amount and amortization. There is a 6-month grace period – you don’t have to make monthly payments until 6 months after graduation, although interest will start accruing when you graduate. Start paying your loan right away to save on interest.

7. Fixed vs. Floating Interest Rate

When you graduate you’ll choose between a fixed and floating interest rate. A fixed rate (prime plus 5%) guarantees the interest rate for the duration of your loan, but you’ll pay a higher interest rate, while a floating rate (prime plus 2.5%) saves money up front, but could end up costing you more if interest rates rise. If you expect to pay off your student loan in less than 5 years it usually makes sense to go with the floating rate – it’s a good idea to set your payment amount at the fixed rate to prepare yourself if interest rates rise.

8. Don’t just make the Minimum Monthly Payment

By paying as much as you can afford you’ll save hundreds of dollars in interest. Any amount paid above your monthly payment goes directly towards principal. For example if your monthly payment is $300 and you instead pay $450, the extra $150 is applied directly to principal, saving interest and shortening your loan amortization.

Final Thoughts

Although student debt is cheap relative to other forms of debt like credit card, being debt-free sooner is a rewarding experience and lifts a weight off your shoulders. It allows you to begin planning the rest of your life. Why be in debt for 10 years like most graduates when you don’t have to be?

About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.


  1. Marni A. on September 6, 2012 at 12:56 pm

    Hello, is it possible to start a spinoff column devoted to students only? I subscribe to several personal finance newsletters and it seems that many devote a lot of space to student finance/debt issues. I haven’t been a student in a long time and have no interest in hearing about it. I imagine a lot of readers may feel the same way? Thanks.

  2. Goldberg on September 6, 2012 at 1:36 pm

    @Marni… I don’t understand comments like that… if it doesn’t interest you, don’t read it… change the channel… move on to the next blog…

    I haven’t been a student in a while but finance is finance… I enjoyed this article. Especially 1st, 2nd, and 8th… Like any debt, making above minimum payment is key.

  3. Elbyron on September 6, 2012 at 5:13 pm

    Though I enjoy reading all the different categories of articles posted here, there are some like Marni who only want to read certain ones. Is it possible to set up individual RSS/Feedburner feeds for each category? What about setting up the email Newsletter to allow users to specify a category filter?

  4. Sean Cooper on September 6, 2012 at 6:43 pm

    Thank you. I’m glad you enjoyed the column. I speak from experience – it wouldn’t really make sense to talk about retirement when I’m 50 years away. I’m glad some readers found my article helpful. Hopefully my previous pension articles benefited others.

  5. SST on September 6, 2012 at 7:59 pm

    Here’s another great way: apprentice.

    Most, if not all, apprentices get their schooling paid for 100%, as well as having a job in place once they complete each stage of their education.

    With an aging and retiring population, there are going to be a lot of plumber etc. positions opening. One trades person I know has multiple tickets so it doesn’t matter which sector is bull or bear, he is always busy and getting paid well. I also have a childhood friend who completed a science/math degree but instead choose to work for a major soft drink company driving a truck full time (which he did as a summer job during school). He makes six figures and has for many, many years.

    But I’m thinking there is still a huge negative stigma attached with blue collar work which drives away a lot of young people. Oh well.

    Would also be great to do an article researching the true reasons as to why education today is so expensive. I’m sure it would please many a student to know why they are being gouged year after year. :)

  6. Cherleen @ My Personal Finance Journey on September 6, 2012 at 11:44 pm

    Great tips! The main key here is living frugally. You do not only get yourself out of credit card debts and student loans but you are also able to also save and invest for your retirement, future family, and other needs.

  7. Sean Cooper on September 7, 2012 at 12:49 am

    Thanks, Cherleen. Exactly. You can get on with the rest of your life – buy a house, start a family, etc.

    Did anyone else see the airing tonight? It was nice to see beside my name!

  8. Ferdinand on September 7, 2012 at 4:26 am

    That’s the sad part about student being student is the loans, when you finally get a job –you’ll have to suffer working for how many years without enjoying what you worked for because then you will be paying your loans for a long time, which is why it is good to have a job while going to school, in that way, you can provide money for your self and have savings in advance.

  9. SST on September 7, 2012 at 5:57 am

    The main key here would be to have an education system which does not allow for the rape and pillage of those pursuing an education. But then again, once the system is broken it’s almost impossible to go back.

    I wonder what the correlation is between the increase of the Canadian money supply and the increase in tuition fees — both supply and time frame. Betcha it’s close to 1.

    In 1970, tuition for the UofT medical program was ~$750 per year. Today it is $19,000 — an average increase of 8% per year, double the “official” inflation rate. The 1970 tuition was ~10% of personal income per capita (Ontario); it currently stands at ~50%.
    M1 increased an average of 12% per year over the same period of time.

    Average doc wage in 1978 (assuming an 8-year med program) was ~$48,500 — nice 700% return on $6,000+! Can a first year med student expect to earn $1 million after graduation (or ever)? Nope. They actually make pretty much the same today as they did over 40 years ago. This is well over 300% cost increase for a 0% increase ROI. Good career choice!

    A welder can earn $50,000 a year and pay exactly $0 for their schooling. They would have earned at least $150,000 in the time it takes a doctor to finish school. Invested at 10% per year — because that’s what the S&P 500 returns, right? — the welder is much, much further ahead than the doctor and will retire much sooner and with a much larger bank account. The 16 year old who quits school and works at McDonald’s from fry boy to manager also earns more than Dr. Doc.

    Any way, I guess one could go on and on about this…

    End example.

    Funny how the more cash and debt are available within a system the higher the price of goods become.

    Let me repeat that: the more cash and debt available, the higher the price of goods.

    And why does the financial situation of a student’s family come into play when applying for a student loan? If I am a student of legal adult status, that is 18-19 years of age depending on province, then my family is no longer legally responsible for me, including any and all financial responsibilities.

    Did the people at the bank inquire into the net worth of your parents and their willingness to pay your installments during the mortgage application process? Didn’t think so.

  10. FrugalTrader on September 7, 2012 at 8:49 am

    @Marni, Elbyron,

    That is an interesting idea, I believe it is possible to setup RSS for various categories, however, some categories are rarely updated. Perhaps that’s an indication that I may have too many! Something I will look into.

  11. Echo on September 8, 2012 at 12:20 am

    @SST – I work for a University and I can tell you the reason tuition fees are going up so quickly is because our provinces are in debt and have cut back on funding.

    In Alberta, specifically, a major source of our funding comes from the Alberta Advanced Education grant. This grant hasn’t been increased in three years, which doesn’t sound so bad (better than it being reduced), but effectively it’s a 2-3% cut to our budgets when you factor in wage costs (union contracts) and inflation.

    Private funding from donors typically goes toward new buildings, research and scholarships. That leaves students to make up the short-fall with tuition increases and user-fee hikes,

    The alternative is to layoff staff and reduce programs for students, but administrations are hesitant to go down that path because they’ll lose students to competing schools.

    No doubt university administrations are bloated and can be trimmed back without students noticing much of a difference. I’m not going to volunteer that as a solution, though. :)

  12. Marni on September 8, 2012 at 11:24 am

    Hi guys, a propos my earlier comment re not wanting to read about student debt, I got through school debt free by working 20 hours a week doing menial jobs such as clerical or cleaning positions and full time every summer. Also got a tuition scholarship for part of my costs. The result was no student debt. It’s a simple but certainly not easy or carefree plan that really works. Valuable real life training comes at no additional cost.

  13. SST on September 9, 2012 at 12:35 pm

    @Echo: “…the reason tuition fees are going up so quickly is because our provinces are in debt and have cut back on funding.”

    Definitely a wrong statement.

    Take the example I provided with UofT.
    Government funding has increased an average of 5.5% per year over the last 10 years (money is ex-research and infrastructure).
    Tuition has increased an average of 8% over the same period of time.

    I’ll let you research the increase in wages and pension costs.
    Time to kill Jabba the Union once and for all.

    UofT medical tuition, as in the example provided, has increased an average of 8% over the last 42 years…are you saying government funding has been decreasing over the last four decades?

    Imagine if there were no easy peasy government student loans available, only bank loans.
    How much do you think tuition would cost?
    Probably pretty close to what it cost in 1970 (adjusted).

    (Same goes for mortgages, but that’s probably best for another article.)

    Government funding is still very much alive and well, if not directly, then indirectly via student loans.

  14. Adam Burry on September 9, 2012 at 1:36 pm

    I graduated from university debt free. I think the keys were:
    1. Financial support from scholarships, parents, and grandparents the first year and a half
    2. Impoverished living (Frugal-squared, if you like)

    And most important:
    3. Co-op education.

    The benefits of co-op education are enormous. In addition to the financial benefits, the work experience is invaluable. Co-op provides a framework for you to go to school while you are working, although it is usually pitched the other way.

  15. SST on September 12, 2012 at 11:42 am

    Just read this:

    “…the proportion of provincial support as a percentage of total university expenditures has declined from 84 per cent to 58 per cent between 1979 and 2009, while tuition has increased from 12 per cent to 35 per cent in that time.”

    Government support: -0.86% per year
    Tuition increase: +0.76% per year

    So if these two negate each other, why, as in the UofT example, is tuition cost still rising at an insane pace — 8% per year?

    “…most provinces have opted not to keep costs down, but rather turn to schemes to offer students loans on favourable terms, or easy repayment options.”

    And schemes they are.
    Cut government student loans all together and tuition et al costs would drop substantially.

  16. Paul on September 17, 2012 at 9:35 pm

    I must say it is surprising how tuition rates are rising. When it comes to handling debt and understanding it a dear friend of mine lead me to
    This was one of the greatest gift a friend could have given me. I would recommend her job domination series for any new graduate.
    I have met woman who were out of work for 3 years and applied simple steps to land high paying jobs.
    I met a student that was making $8,000 a year waiting tables and by using Dani’s tips landed a job making over $9,000 a month.
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  17. SST on September 25, 2012 at 3:48 am

    @SST (#13): “Imagine if there were no easy peasy government student loans available, only bank loans.
    How much do you think tuition would cost?
    Probably pretty close to what it cost in 1970 (adjusted).

    (Same goes for mortgages, but that’s probably best for another article.)”

    In regards to that last point…

    From Ben Rabidoux, creator of the Economic Analyst blog, which looks into housing and mortgage trends:

    “The CMHC has “absolutely been the key driver in the boom in the ownership rate in Canada,” and that this is having an inflationary impact on everyone.

    “Without that government support that’s allowing people with very little down to jump into the ownership pool, you just would not see the ownership rate expanding the way that it is,” he argues. He also believes the CMHC mandate is inherently self-defeating.

    “They don’t provide affordable housing, they provide affordable financing. And when all you do is provide affordable financing, you inflate house prices.”

    The more money…I mean credit people have access to, the more prices will increase, be it real estate or tuition.

    Cut out government-backed student loans and mortgages and prices would fall nicely.

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