Student Loans 101

Yet in most cases, government student loans are still the best option since you won’t have to pay a cent until six months after graduation, no interest is incurred while in school, and assistance programs like Interest Relief and Debt Reduction are available for those who have trouble paying. You are required to pay interest monthly on most lines of credit and, unlike government student loans, the interest paid cannot be claimed as a tax credit. But be wary of taking on an unmanageable level of student loans: federal law prohibits you from filing bankruptcy on them for 10 years.

A debt option you’ll be bombarded with on campus is a credit card. A responsibly used credit card can be useful for building your credit rating, says Elena Jara, education co-ordinator for credit counselling non-profit Credit Canada. But be careful. “This is the first time students have that decision-making power and can get that card, but they don’t understand what that entails.” Jara recommends educating yourself in advance by checking out the Financial Consumer Agency of Canada’s website. It lists credit card interest rates and policies.

Once you have your loan, the most obvious way to avoiding a decade being ground down by post-graduation loan payments is to limit your expenses. But this takes more than simply cutting back on Thursday nights at the campus pub. According to Jara, it takes smart and detailed budgeting. “You need to understand your income and all of your monthly expenses,” she says. “That’s a big problem when people are creating budgets. They say, ‘Oh, I’m not going to spend money on cigarettes. I’m not going to go out.’ By the second week, they say, ‘I can’t live like this,’ and they blow their budget.” To help create a realistic budget, use the online tools at canlearn.ca, and on the Student Finance 101 section of macleans.ca/oncampus.

One way to limit expenses is to live at home. As much as you may be aching to leave the nest, consider this: an additional $5,000 in debt means an extra $1,500 in interest over 10 years. Also, make sure you’re applying for all scholarships and bursaries available to you, make some cash by working in the summer, and talk to your family about any help they can offer.

Once you have a student loan, you must regularly update the National Student Loan Service Centre (NSLSC) and your provincial lender about your educational progress. It’s up to you to ensure that both agencies know when your study end date is, if you become a part-time student, switch schools, or if your financial situation changes. If you don’t reapply for a new loan each year, you must submit a form to demonstrate that you are still a student in order to maintain interest-free status. If you neglect to update either the province or the NSLSC, you could end up in default and be forced to pay outstanding interest before being reinstated to interest-free status or allowed to apply for new loans.

Disputes between the NSLSC and borrowers are unfortunately common. To make sure their mistakes—and the NSLSC does make mistakes—don’t get pinned on you, Julian Benedict of the Coalition for Student Loan Fairness advises borrowers to create what he calls a “neurotic portfolio.” Keep a file with all paper correspondence, applications and supporting documentation, loan agreements, and a record of every telephone conversation you have with NSLSC agents, including the date and their ID number. This file will also come in handy if your application is audited.

Once you’ve finished your degree, there is a six-month grace period before you are required to begin making payments. But because interest begins to add up as soon as your study period is over, it’s best to start paying off the loan as soon as possible. Once the graduation hangover has worn off, call the NSLSC and ask for a statement and your consolidation contract. To estimate your student loan payments, visit canlearn.ca.