
The last time we made a regular payment on our Canada Student Loan was March 6, 2020.
That day, we sent $150 toward the loan. It was the second of four planned payments for the month.
Eleven days later, the government announced an interest-free suspension of Canada Student Loan payments until September in response to COVID-19.
And even though we have the option (and ability) to continue making payments, we decided against it.
I’ve mentioned it a couple times since, but today, I wanted to share a little more about the thought process.
So…here we go.
The state of our Canada Student Loan before suspension
January 2020 marked one year of making significant extra payments on our last debt: the student loan.
In Canada, student loans are made up of two parts: a federal portion and a provincial portion. How those loans are managed (and how you pay them back) varies depending on the province you live in.
New Brunswick uses an integrated loan system. This means we make one payment each month which is divided up between the two portions of the loan.
We started our debt-free journey with about $48.5K of student loan debt.
According to our debt-free chart, at the time of the Canada Student Loan suspension, we owed $28,416.60.
The Canada Student Loan suspension
On March 18, 2020, the Government of Canada announced a moratorium on the repayment of federal student loans for six months in response to COVID-19.
Not only did the government suspend payments, it also suspended interest for that time period. Several other provinces, including New Brunswick, did the same with the provincial portion of the loan.
The suspension took effect on March 30, 2020 and will last until September 30, 2020 at least.
Unlike so many things related to student loans, this change came into effect without requiring a mountain of paperwork. Government noted borrowers can continue to make payments toward their loan during this time.
We are in a position where we could continue with our payments, but we’ve opted against it.
Why we stopped making payments on our Canada Student Loan
Why would two people who are still working and drawing a salary stop making payments to their student loans? Wouldn’t it make way more sense to keep paying, since all that money would be going toward the principal balance?
Those are fair questions.
In the end, there are three reasons why we stopped our payments during the Canada Student Loan suspension.
The loan isn’t collecting interest
One of the reasons we’re not making payments is the fact that the interest isn’t accumulating.
By making the suspension period interest-free, it essentially means our student loan balance is frozen. Not making payments at this time means the balance isn’t going down — but it’s not going up, either.
If the interest was still accumulating, this would be a very different post. It wouldn’t make sense to hang onto the money while the loan keeps growing over the moratorium period due to interest.
But in my opinion, this arrangement is actually an improvement on status quo. It makes it possible for us to hang onto the cash for the time being without undoing the hard work we’ve put in since we started paying back the loan.
We want to have a bigger emergency fund
So what about the money that would normally go toward the student loan? Where is that going?
Answer: straight to our emergency fund.
I’ve written a lot about our emergency fund over the years — specifically, about how I don’t believe $1K is big enough for an emergency fund. This whole situation has done nothing but further cement that belief for me.
We aim to keep $5K in an emergency fund at any given time. In normal circumstances, this feels like a comfortable total for two humans and two cats during debt repayment.
But these are not normal circumstances. So instead of paying students loans, we’re keeping that money in our emergency fund. In a situation that’s so uncertain and where we have so little control over what’s going on, I like the idea of having more cash available.
The website isn’t reliable (right now)
My experience with the student loan website post-announcement has been all over the place.
At first, it wasn’t loading properly. I could get to the main dashboard, but I couldn’t view the balance page. Every time I tried, I’d get an error saying the site was down for maintenance.
A couple weeks later, it appears the issue has largely been resolved. But when I look at our balance, it’s pretty clear the totals aren’t quite right, particularly as it relates to outstanding interest.
There is a note on the main page of the site explaining it may take time for the measures to be applied to individual accounts, which means your account might reflect incorrect information for a period of time. Considering how quickly the changes were brought in, it makes sense that there might be some struggles on the technology side.
But I am someone who likes to be able to check the account for errors — which is hard to do when the information online isn’t accurate.
Our plan when the suspension is over
As of right now, the suspension for Canada Student Loan payments is in place until September 30, 2020. The federal government has indicated it could be extended, depending on…well, how things go over the next few months.
Regardless of how long this is in place, our plan is simple: we are going to store the money that we would normally pay toward the loan in our emergency fund — and when things hopefully get back to normal, we’ll make a large, lump sum payment.
The goal with our emergency fund is always to do what we can to not use it. This goes for the money that is usually in this account — and it definitely applies to the student loan money we’re storing there.
The goal is to not touch this cash at all unless we have no other options.
When we decided to do this, I debated opening a new savings account for the money but ultimately decided to just keep it together with our emergency fund. To keep it organized, I added a little box to our budget spreadsheet where I can track how much of that money is designated for student loans. Between that, my regular colour-coding system and my daily check-ins, I feel pretty good about keeping it all straight.
Final Thoughts
Not taking advantage of the interest-free moratorium on student loans might seem like a strange choice, but I feel good about the plan we have in place.
I should also say I am very cognizant of how lucky we are to be in a situation where this is the biggest financial decision we have to make. It sucks what’s happening right now. There’s really no other way to put it. Words don’t mean a lot but if you are struggling right now because of this situation, I’m sorry. I really hope things get better soon.
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