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Financial Friday #165: Investing in Education — Student Loans

Friday, July 14, 2023   /   by Mario Daniel Sconza

Financial Friday #165: Investing in Education — Student Loans

Education is a lifelong investment that usually delivers great returns. Unfortunately, it can come with a mountain of debt that can seriously impact your life for many years after graduation.



The cost/benefit of your studies is very different from person-to-person and while that decision is personal, it is critical to fully understand the financial implications of taking a student loan and incorporate them into your decision-making process. A lot of kids 18 or 19 years old are making these decisions when they really don’t have the knowledge or perspective required on how it will play out over the long term.



The recent change to eliminate interest from all existing and future loans under the Canada Student Financial Assistance Program (CSFA Program) is a real game changer. While you still may be subject to interest on the provincial portion depending on where you live (and from any private loans/lines of credit), this change has had a substantial impact on the overall (lifetime) cost and how you approach and prioritize repayment.



Please note that "student loans” in Canada are usually a mix of loans and grants from the federal and provincial government which leads to a lot of variations. The following pertain mostly to Canada student loans —  make sure you investigate further based on your situation.





  • You must start paying back your loan within six months of completing your studies and the maximum term of the loan is 174 months (14.5 years). Borrowers typically take between 9 and 14 years to pay back their loans







  • The RAP (Repayment Assistance Plan) may be an option if you are having difficulty paying back your loan. It provides for loan reduction or elimination in select/limited cases.







  • The average Canadian student loan (not just the federal portion) for a 2-year college is around $15,000 and $28,000 for a 4-year degree.







  • If you declare bankruptcy within 7 years of graduation, your student loans are not forgiven.







  • The repayment terms are flexible — you can adjust the amount and frequency of payments along the way as long as you meet the minimum repayment requirements.







  • Missing payments for nine consecutive months will result in your loans being sent to the CRA for collection and your credit rating will be heavily impacted.




  • A portion of your loans may be given in the form of grants depending on family income. The current maximum annual grant is $6000.







  • Paying back your loan will help establish credit history and improve your credit score, although your outstanding student loan balance forms part of your total debt service ratio when applying for a mortgage.





There are plenty more details to look into if you (or your kids) are considering a student loan, you would like to pay back your existing student loan more quickly, or you are struggling to make your loan payments.



Resources: 



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