To loan or not to loan

Financial barriers are among the most common reason that young people do not continue on with their studies. As millions of students start classes next week, many of them in post secondary education will be given applications for credit cards in the form of what is known in the credit industry as the “Grad Kit”. The Grad Kit is a very valuable tool if you are a credit card company – just imagine, thousands of new potential customers in one place at one time. Some of these new customers will become customers for life.

My daughter is starting college this September and last week she returned home with 5 applications for credit cards. Her college, as part of the registration process, had given the applications to her. What are they doing to our kids? The marketing of these cards is being done by the people that are there to educate her but with these card applications came no education, just offers like “$1000 rebate to put toward her student loan” (She does not have a student loan). The next makes an offer of “freedom of choice”, “save 10% and get free shipping”. Another one proudly states “How to get an A in Credit (for the rest of your life)”.

The question is why would you want an A in credit for the rest of your life if you do not need credit?

So if you are a student, beware – look at all your options before borrowing any money. If you do need to borrow, get the best deal on interest that you can and pay it off as fast as you can.

First, create a budget.

Typical fixed expenses for students

  • Tuition
  • Student fees
  • Books – new and used
  • School supplies
  • Residence – with meals
  • Rent – live off campus
  • Car payments
  • Utilities
  • Insurances – medical, car and dental
  • Phone

Variable expenses for students

  • Groceries
  • Clothing
  • Gasoline
  • Parking
  • Laundry
  • Travel
  • Entertainment
  • Computer
  • Internet

Financing options for students

  1. Savings and family support, summer employment, part time job - if you can work it will really improve your financial stability and your cash flow
  2. Parents, grandparents, family members – remember all donations are welcome, never look a gift horse in the mouth
  3. If your are fortunate enough you may have bonds, GIC’s (Guaranteed Investment Certificate) – an investment for a specified time
  4. RESP (Registered Education Savings Plan)
  5. Mutual funds – investment is not guaranteed – no maturity date
  6. RRSP (Registered Retirement Savings Plan) can help reduce your taxes when you do have employment income
  7. Check to see if you have a tax refund coming from last year’s taxes
  8. Scholarships and bursaries - money that does not have to be paid back
  9. Student loans – a loan to help Canadian citizens and permanent residents meet the costs of post-secondary education – these loans are funded by provincial and federal governments
  10. Personal Loans – financial Institutions – these loans will most likely require monthly payments and charge interest even while you are attending school so be careful

Student loans

Remember all student loans need to be paid back and student loans will affect your credit rating. The average debt load for a graduating student in a 4 year program in 1999 was $25,000 – the cost of repaying that loan at 10% interest over 10 years is $14,645 – for a total of $39,645 – that is almost what I paid to purchase my first house. Your education is extremely expensive. Make sure to think very carefully before you borrow any money. It makes good sense to try and cut back on expenses rather than take out a loan.

Helpful websites

Student Awards and Scholarships
Hobsons Canada
Edulinx Canada Corporation
Government of Canada

Next Week: More on student loans.