Protect Yourself: Pre-Authorize

It is easy to lose track of your student loans. Unlike other types of loans and accounts, your lender doesn't normally send you updates of what you've paid, when it was paid, and what's still owing.

With great restraint, Debt 101 will avoid commenting on this odd practice. Let's just say this: this lack of normal lender-borrower communication increases the risk of missed payments and defaults, and you will suffer more than your lender.

One easy way to avoid problems with your student loans is to set up pre-authorized monthly payments. That way you won't have to track every date a payment comes due.

Pre-authorized payments also cut your risk of accidental defaults, whether through your own mistakes or the mistakes of your lender.

Caution:

Never use pre-authorized payments out of an account that has no protection! Make sure your payment account has overdraft protection or another form of backup, such as a line of credit. That way, your pre-authorized payments won't bounce if your account balance runs low.

Without protection for your pre-authorized payments, you'll be stuck with costly NSF fees and bank charges when your account dips too low to make your loan payment. Worse, if your loan payment bounces, you'll go through student loan hassles, explaining what happened, making new arrangements and knowing that your lender is marking this against your payment record.

Shop around for cheap protection:

If you have accounts with more than one financial institution, pay your student loans out of the one that charges you the least. For example, it may be cheaper for you to use a line of credit instead of overdraft protection, but you may only get that option at one of your banks or credit unions.

If you do get a line of credit, always pay the balance quickly. Don't let it load up with debt! If you use up your line of credit or overdraft protection, you'll be at risk of student loan problems.

How to pre-authorize payment for your student loans:

If you're repaying Canada Student Loans with NSLSC, you'll find your Pre-Authorized Payment Application form in the Application Forms section.

If you're paying provincial, private or Canada loans with another lender than NSLSC, contact your lender(s) to make arrangements.