High School
Student debt smarts
Education doesn’t come cheap. How to keep your debt in check
Being smart about student debt
Education doesn’t come cheap. A lot of students just assume they’ll go into debt to pay the bills. But is that a smart move? After all, no one likes debt. And student debt can hang painfully over your head for years after you graduate.
The good news is that borrowing for your studies after high school isn’t like borrowing to buy a car or a big-screen TV. Those things will eventually wear out and need to be replaced. But your education has lasting, long-term benefits – especially for your wallet.
Studies show that university graduates tend to make somewhere around $20,000 a year more than non-graduates. Over your whole career, that can add up to about $1 million of extra income.
So if you’re ready to make the investment, but need some help paying your way, read on. You’ll find lots of useful information, tips and examples about how to manage your student loans wisely. And, you’ll discover how it really pays off to get smart about student debt.
Learn more
Top three dangers of student debt
Why borrow from the government?
What’s it going to cost? The lowdown on your Canada Student Loan (CSL)
The slippery slope: how student debt adds up
Making borrowing make sense: one student’s story
Quick links: Where to get funding
Content provided by InvestorED.ca, an independent non-profit created by the Ontario Securities Commission to help people make effective use of financial information.
Should I get a student line of credit or a student loan?
What are pros and cons of getting a student line of credit from a bank rather than taking out a student loan?
This need not be an either/or decision. Many students get government-sponsored loans and then arrange a bank line of credit if they need more money. As explained here, there are two types of government loans: federal and provincial. Here are the major differences between them and a student line of credit (LOC) from the banks:
• The LOC is more flexible in that you can borrow only what you need and make repayments in any amount at any time. If you do not qualify for credit on your own, you will need a co-signer who becomes responsible for the outstanding balance if you default.
• The government loan has a fixed interest rate. The LOC rate is based on the prime rate, which fluctuates. If you compare rates today, the LOC rate will likely be lower, but there is no guarantee that it won’t float higher over time.
• The government loan requires no payments while you are in school. You can then delay payments for 6-30 months depending on your situation. The LOC often (but not always) requires you to pay interest monthly, even while in school. Some lines of credit offer grace periods of up to a year after graduation before you need to begin repaying the principle on your loan
• Interest paid on a government loan generates an income tax credit. Interest paid on a bank’s student LOC doesn’t. Many students do not realize this until it’s too late.
Many schools have arrangements with banks that offer student lines of credit. The financial assistance office at your school might be able to provide a loan versus LOC comparison for your specific situation.
Content provided by InvestorED.ca, an independent non-profit created by the Ontario Securities Commission to help people make effective use of financial information.
What happens if I don’t pay my credit card bills?
I know I’m supposed to pay my credit card bills, but I’m wondering: what happens if I don’t?
Although you might think that it is an easy oversight to miss a credit card payment, the repercussions will be with you for years. Credit cards can hold nasty surprises including interest rate hikes and worse if you miss a payment, so you need to put together whatever resources you can to pay your monthly bill- even if you can only make the minimum payment.
It goes without saying that paying the minimum payment is an option in only one situation- that is if the alternative is not paying anything. In either case, if you find that one of these options is necessary than you need to need to think seriously about whether you can afford your lifestyle.
There are four stages of woe if you default on your credit card bills:
1. Your card issuer will inform the credit bureaus and your rating will be reduced, making it much harder and/or more expensive to get credit in the future. This default will be on your credit record for the next 6 years.
2. Many credit card companies have terms that change if you miss a payment- eg. your reasonable introductory rate of 7% could go up to 18% or more.
3. Your card will be put on hold and won’t be able to use it until it is paid off
4. If you have a savings or chequing account at the bank that issued your card, in some cases the card agreement may allow them to take money from your accounts to cover the outstanding credit card bill.
5. If you don’t pay for a long enough period, the bad account will be turned over to a collections agency. At this point, your credit rating will be exceptionally low and you will have long-term repercussions-
The hassle of any of these issues will live with you for years and will have an impact if you need a loan for things like student debt, a car, a wedding, a house or anything else down the road. The consequences are serious- don’t wait to pay it off, and pay it all off every time.
Content provided by InvestorED.ca, an independent non-profit created by the Ontario Securities Commission to help people make effective use of financial information.
