Budgeting, saving and investing for a brighter financial future

Smart ways to manage student loans

By Emma Paling,

Comments (1)

Smart ways to manage student loansAverage university tuition rates in Canada topped $5,000 for the first time in 2011 and are continuing to rise ($5,772 for 2013-2014), according to the Statistics Canada report, Undergraduate tuition fees for full time Canadian students. As a result, many students now view debt as a necessary part of going to school. In fact, the Canadian Federation of Students (CFS) calculates that Canadian students now owe more than $14.7 billion for federal government loans alone.

Student debt can negatively affect both the individual student and the economy as a whole as it limits access to higher education and skews career choices, notes the CFS in Student debt in Canada: Education shouldn’t be a debt sentence. Most students who skip post-secondary education do so because of financial issues and debt can also be a decisive factor in career choice after graduation.

There is some good news for students, however: You can choose reasonable borrowing options and find ways to handle your debt responsibly.

Borrow the minimum

First, be sure to minimize how much you need to borrow by looking for scholarships and bursaries from sources such as:

  • Your high school and college or university (not all of these are given out automatically – some require an application.)
  • Your or your parents’ workplace
  • Community organizations

As well, remember to take advantage of tax credits. The Canada Revenue Agency offers full-time students tax relief by allowing you to claim up to $400 per month for tuition, $65 per month for textbooks and a tax credit on the interest payable on your student loan.

Compare government grants and loans

Jake Sheehan, an insurance advisor with Life Design Systems, says that provincial government loans are often a better option for students than federal loans, as the provincial loans typically offering a delay before interest starts accumulating and a longer repayment period.

The federal government provides both grants, which do not need to be paid back, and loans. Interest accumulates for part-time students throughout their time at school. After graduation, you can ask to increase or decrease your loan payments if you are either having difficulty making the payments or you want to pay off the loan sooner. (Find out more at

Research bank loans and lines of credit carefully

“The economic turmoil of the past three years has made people more aware of how much they are borrowing and what that money is being used for,” says Sheehan. It’s especially important to do lots of research before taking out a loan, because different banks are better for different programs.

He also notes that most banks will offer a student line of credit with preferential interest rates and repayment plans. These are based on the prime lending rate, so when the prime is down, interest rates will be more attractive. Conversely, if the prime rate rises, the interest portion of the monthly repayment amount will rise as well.

Plan a loan repayment strategy

Emma-Lee Linton, a student at Queen’s University, took out a government loan to help cover her school costs. Linton minimized the amount she had to borrow by applying for grants and bursaries, and by saving money during the summer. “Sometimes it’s daunting to think about how much I have to pay back,” she says. “But I stick to a budget and separate my money from borrowed money so that I don’t overspend.”

Debt repayment is one of the most important parts of a financial plan when a graduate starts working, says Sheehan. “It’s best to sit down with a financial planning professional to set up a repayment strategy that is efficient, manageable and integrated into your future financial goals,” he adds.

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Sarah on

One word of advice when taking loans with the federal government. The interest is calculated on the initial value of the loan for the duration of time it takes to pay the loan out in full. At the current rates, a $10,000 federal loan at the minimum monthly payment of $110, $40 of which is interest. That means the $40 paid every month, from the first to the last, adds up to nearly three quarters of the value of the loan by the end of the term.

While federal loans don’t have to be paid back while attending school, the interest fees are astronomical in comparison to the typical bank loans, which require interest paid on the balance remaining every month. I would suggest, as soon as you can, increase the monthly payment amounts to (at least double what your statements suggest you pay), or to transfer the federal loans to a bank loan. Yes, the monthly payments could be higher (as the amount isn’t amortized over 6-9 years), but you’re paying it off faster and with substantially less of your money paying off interest instead of the principal.

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