1. What student loan options do I have?
There are 2 government student loan options (National and Provincial) and there are education Loans from Financial Institutions like Credit Unions and banks.
2. Which is best for me?
I would recommend starting with the Provincial and National student loan programs. You apply for both on the same application. With these government student loans you do not pay or accumulate interest while you are going to school, there are some payment relief programs in place after graduation, and the interest paid on government student loans is tax deductible. There are some scholarships or grants that may decrease what you owe for government student loans.
3. So why would I use a credit union or bank education loan?
The government loans programs have restrictions on how much they will lend you based on your parents’ income, how old you are, and whether or not you are living at home. Often the government loan programs do not provide enough to cover all your expenses while attending school. The credit union or bank education loans can help you get the funding you need so you can worry about studying rather than your finances.
4. Why not just go with the financial institution education loans and not government?
The advantages of the government loan are discussed in #2 with their main disadvantage discussed in #3. The credit union and bank education loans are flexible, and will usually provide a greater amount of funds than the government loans, but: they require interest payments while going to school, the interest is not tax deductible, and there are no payment relief programs. The interest while going to school is usually prime + 1 or so. The financial institution may need your parents to co-sign the education loan.
5. How are the funds sent to me?
The government usually gives you a large amount in September and January, whereas the financial institutions usually provide a flexible loan or overdraft that is attached to your chequing account and can be accessed anytime with your debit card.
6. How much will school cost?
If we consider that most students in the Rocky Region have to leave home to attend school, the following are some average costs:
Tuition/yr: University $5,200 College $3,700
Books/yr: University $1,500 College $1,200
Rent: With room mates $600/month or $4,800 for 2 semesters
Food: $200/month or $1,600 for 2 semesters
Other things like entertainment, vehicle, phone and computer depends on your own lifestyle.
Average minimum cost of over $13,000/yr for university and over $11,000 for college.
7. How much will a loan cost?
Right now prime is at record lows. If you borrow $10,000 and pay the monthly interest on it, you will pay about $30/month in interest while going to school. If you have borrowed $30,000 for year 4, you will pay about $90/month in interest, at the current record low rate. The rate will likely be going up soon, meaning the monthly interest payment will go up as well.
When it is time to start paying back your student loans, it is important for you to contact your lender, whether that is the government or the financial institution. These are actual loans that you have borrowed with the promise of paying them back. If you are paying back a $30,000 loan at 5.5% over 10 years, the monthly payment will be around $325, quite a bit for fresh out of college. In the above example you will have paid over $9,000 in interest just in the 10 years of paying off the loan.
Education is an investment worth borrowing money to finance. Your education should increase your value as an employee and an income earner over the course of your life. While education is worth borrowing for, like anything else we put on credit, we can over spend. Be aware that the more you borrow means the more you will have to pay back, and those loans will go with you for years after you have used them. If you can live more frugally while going to school, it will be worth the effort in the long run to owe so much less upon graduation. Jerry
From personal experience, while I needed a student loan to finish university, I really didn't need as much as I was offered and then used. I should have saved more over the summers. I ended up dragging my student loan around for 10 years after graduation, and the payments were as large as some people's mortgages. The interest rate quoted above (5.5%) is actually quite low. Mine was at about 8% most of the time. It was definitely worth it to get an education and then be able to work in an industry I really enjoy, but I do wish I hadn't borrowed as much and that I had been more careful with my spending during school.
ReplyDeleteGood Article, also note it is improtant to apply for your student loans early. Whether you are going through the Federal/Provincial loans or through your bank start applying in May or June. This way you are not rushing around at the last minute and you have your funds available for the start of the year when you need it the most (tuition, books etc) Begin your applications in May or June.
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