Attending university is a dream for many students. Having that first taste of freedom from home, the independence of being an adult, and the idea of a new chapter is enough to make anyone giddy. However, coming up with a plan to pay for said post-secondary education is another story. Suppose we aren’t lucky enough to have our education paid for by our family or even our province. In that case, we will likely need to turn to student financing and loans – and maybe a part-time job – to pay our way through school.
When it comes to student financing, there are multiple options you can choose from to arrange for funding or credit. Unfortunately, no two options are the same, and no two banks offer the same plans – at least, we don’t think so. Therefore, it’s important to do a thorough amount of research so you can find out which option works best for your personal and family circumstances.
This article will briefly cover each option and what you can expect to see in interest rates and monthly payments. You may find that your first impression that government student loans are better is misplaced. This is especially true if you live in a province with a higher interest rate than those a private bank can offer.
Every province in Canada offers their type of student loan that comes with its processes and factors. In addition to provincial loans, the Canadian government also provides a student loan plan through the National Student Loan Service Centre. You can find some great tools on this website and see an overview of your loan, your payments, how much you still have owing, and the expected date your loan will be paid in full.
Typically, you will apply for the federal portion of your loan through the same website for the provincial share. In Ontario, for example, you are given the option to apply for a federal student loan when applying for OSAP. However, suppose your local portion is enough to cover your tuition and living expenses. In that case, you may not need to use it for the federal part, especially if the interest is higher.
The interest rate for a Federal Student Loan is 0.5% + Prime (the average bank Prime rate changes frequently). At the time of writing this article (October 2021), the Prime rate in Canada is 2.45%. This means that your interest rate on only the federal portion is 2.95%. However, if you live in Manitoba, where the interest rate of your provincial portion is 0%, you may find that a private bank loan or student line of credit with a lower interest rate is enough to cover any further funds you need.
To learn more about government student loans, check out our recent article.
Private banks offer students multiple options for obtaining financing for school. Often you can choose from a student credit card, line of credit, or a simple student loan. Each will offer different interest rates. You will be offered varying options when you attend your first meeting with a financial advisor. These options depend on your and your parents’ or guardians’ income and credit rating. If your credit is relatively good, you will likely be offered a great interest rate.
A student line of credit, offered by most banks, gives the holder a preset limit on borrowing. The student can then take out money from their line of credit and sometimes instantly transfer it to their main chequing account. You only need to take as much out as you need instead of being given a lump sum that will sit in your bank account. This means that interest owed and paid will only be on what you used. For example, if the bank gives you a line of credit up to $10,000 and you only use $3,000, you only need to pay interest on the $3,000.
Often you will notice that the interest rate offered by a bank for a student line of credit is lower than that of the government’s loan plan. Keep in mind that you begin paying interest as soon as you borrow against it for most lines of credit. Government loans give you a six-month grace period as well as have payment plan options. However, suppose you are paying interest right away. In that case, you may be more likely to pay off the debt sooner and have payments make a positive impact on your credit rating.
Scotiabank offers a Personal Student Line of Credit that includes specific features such as deferring payments until you’ve completed school. After that, all you pay is the interest. You also get a 12 month grace period after graduation before you need to start paying back your principal amount. The maximum credit limit available is $15,000 per year to a maximum of $40,000 for full-time studies and $7,500 per year to a maximum of $20,000 for part-time.
For CIBC’s Professional Edge Student Program, you can borrow up to $350,000 depending on your field of study. There is also a standard Education Line of Credit that starts at $5,000 and up. This line of credit offers only interest payments up to 12 months after graduation, and you can receive up to $60,000 during your education. There is a $15,000 yearly limit for full-time students and $7,500 for part-time students. Payments can be spread out or deferred for up to 20 years.
The Royal Bank of Canada Student Line of Credit gives students up to two years after graduation to begin paying off their loans. After that, limits start at $5,000 and go up from there.
TD Bank also has a student line of credit available. Like other banks, it only requires interest payments to be made two years after graduation. Once your education has ended, payments will become fixed. Full-time students can borrow up to $20,000 per year, up to $80,000, and part-time students are the same. Graduate or Professional studies may qualify for more.
To find out more about borrowing from a student line of credit, reach out to the bank or financial institution of your choice to set up a meeting with a financial advisor.
A Registered Education Savings Plan (RESP) is a savings account that is usually started during childhood and accumulates interest and payments throughout a child’s upbringing. Usually, by the time you are old enough to go to college, a large enough sum has been reserved that will pay for a good chunk of your education.
The Federal and sometimes Provincial Governments will often add grants to RESPs depending on the subscriber’s income. The subscriber will also be given a set limit of contributions made each year that won’t be taxed as income. Government grants include the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), or any designated provincial education savings program. Payments made to the beneficiary while in school must meet the standards set out by the promoter (the bank) to ensure they aren’t taxed or otherwise.
Remember that you have specific rights when it comes to any loan or debt. You have the right to receive all the key details you need about the loan, such as interest or payments. If these are not offered to you before signing the loan, do not sign until you have received everything and understand everything you are signing.
We also recommend looking into any scholarships or grants available to you before applying for any loans. Some high schools have difficulty finding students to give grants to, so using can significantly increase your chances. Same with the college or university you have applied to; they will have a section on their website where you can find out more information about applying for possible scholarships. Anything you can do now to decrease your debt when you finish school will make a significant difference. Take the time to look into what options are available to you in your community and province.