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Worried about going into debt for university?

A graduate trying to remove some money from her piggy bank.

Ireneusz Skorupa/iStockphoto

Having a degree can pay dividends career-wise, but graduating with too much debt can be debilitating. If you've decided education will be your first big investment, the time to begin with financial planning is now.

Students who graduated in 2013 have an average debt load of $28,810, according to the Canadian Federation of Students. A recent poll by Gallup Inc. measured the financial health, happiness, community engagement and physical well-being of more than 30,000 U.S. postsecondary graduates. It found the higher the student debt load, the worse the graduates scored in all aspects of their well-being.

It is possible to graduate with a manageable amount of debt and still reap the benefits of having a postsecondary education. Before borrowing, you need to figure out exactly how much you are going to need. Start with your assets, such as any savings, scholarships, loans or monetary gifts from family, and then tally up your expenses. Aside from tuition, don't forget to include the cost of transit, clothing, toiletries, food and entertainment, or housing if living away from home. Consider seriously what luxuries you can live without, such as cable or dining out.

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There are a lot of great tools available to prospective students to help create a budget, so you don't need to start from scratch. Most banks host student budgeting tools and resources on their websites. Websites such as the Canadian website studentfinance101.org are hubs of resources, featuring advice, financial calculators and comparison charts.

Don't forget about free money. Many scholarships and bursaries go unclaimed every year because of a lack of applicants. "Lots of that money is being left on the table because students aren't taking advantage of that service," says Janet Boyle, vice president of unsecured lending at Bank of Nova Scotia. They can help students bridge some of their financing needs, she says. She recommends visiting studentawards.com, which features more than $87-million in awards.

SAVING IS ALWAYS THE FIRST BEST OPTION

While using savings to fund your education is ideal, 30 per cent of Canadian families don't set aside funds for their children's education, according to Statistics Canada.

However, it's not too late to save up a safety net to avoid relying on expensive borrowing products such as credit cards and lines of credit. Jeannine Mitchell, founder of studentfinance101.org, cautions students to avoid taking on any debt. Graduates with large debts don't have the freedom to take

low-paying jobs or internships, which can affect their career prospects, she warns. Often, students with large debt loads are forced to accept jobs outside of their field just to make minimum payments.

"If you feel you absolutely must take that program that would put you deep in debt, I would suggest working for a year or two so you can save up," Ms. Mitchell says. "That way you'll enjoy your program more because you won't be so stressed about money."

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GOVERNMENT STUDENT LOANS

If you do need to borrow to finance your education, Canadian students have access to a combination of provincial and federal loan programs. These are the wisest choice, as they provide various repayment assistance programs after graduation. For example, if you find yourself struggling financially as a grad,

you may qualify for a program that offers temporary relief from monthly payments and provides the freedom for you to manage an entry-level job or internship.

According to Ms. Mitchell, no bank can match the favourable terms offered in Prince Edward Island, Newfoundland and Nova Scotia, where the provincial portion of government loans is interest-free. The provincial portion of the loan can be as high as 40 per cent of the total amount, so the savings can be significant.

Another advantage of government loans over bank loans is that you won't be required to repay any portion of the loan until six months after graduation. If you take out a line of credit however, you'll have to make interest payments while in school.

While interest rates and repayment plans vary from province to province, the federal loan program, Canada Student Loans, has two interest options. Borrowers can choose between a fixed interest rate of prime plus 5 per cent, or a variable interest rate, prime plus 2.5 per cent, according to the government's CanLearn website.

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PRIVATE LINES OF CREDIT

For those who don't have enough savings and don't qualify for government loans, borrowing from a financial institution is an option, but should be considered carefully.

Once you are approved for a certain amount, say $10,000, you can use as little or as much of it as you need. If you pay off a portion of the line of credit, you can re-borrow it. "It gives the flexibility of not having to draw down on the full amount, but still having some of that additional fund available should they run into an emergency," Ms. Boyle says. Depending on the length of your program and course load, you may qualify to borrow from $5,000 to $10,000 a year. For more expensive professional degrees, some banks offer larger loans. Interest rates vary, so shop around.

Unlike government loans, you are required to make interest only payments while in school. Because of this, borrowing too much can lead to unmanageable payments. "Some students underestimate the pressure of growing interest payments on their lines of credit and I've heard of some dropping out before they graduate," Ms. Mitchell says. In most cases, you don't need to make payments on the principal until 12 months after graduation, but lines of credit don't offer repayment assistance plans such as those for government loans.

LONG-TERM CONSEQUENCES

The risks are real: "A late or missed bill payment can really damage a credit rating so it's important to have a strategy in place, and, again, a realistic budget to help them monitor their spending and staying on track," says Katy Boshart, vice-president for personal and indirect lending with Toronto-Dominion

Bank. "Impacting your credit rating can impact your ability to borrow money later."

If there's one thing the experts agree on, it's that seeking professional help is worth your time. Sitting down with a financial adviser at a bank is almost always free, so visit your bank to talk budgets and savings, even if you are only taking out government loans. "There are so many options out there that are available for students in terms of their banking options that it's best for both parents and students to visit their branch and talk to their financial adviser to understand what their options are as they go through that plan," Ms. Boshart says.

DEBT, BY PROVINCE

AVERAGE CANADA STUDENT LOAN DEBT FOR BORROWERS FINISHING UNIVERSITY IN 2011-12 BY PROVINCE OF STUDY

Alberta: $14,533

British Columbia: $16,087

Manitoba: $11,712

New Brunswick: $17,267

Newfoundland: $15,496

Nova Scotia: $20,218

Ontario: $15,942

Prince Edward Island: $21,490

Quebec: $18,574*

Saskatchewan: $17,881

*Quebec does not participate in the Canadian Student Loans Program and only those students from out of province are captured here.

A TALE OF TWO STUDENTS

Kate Rogers, 23

Degree: In fourth year of Engineering. Previously completed 2 years of general studies, Memorial University, St. John's, Nfld.

Tuition: $3,000 a year, including ancillary fees, according to the university

Current debt: $800 on credit card

Re-paid debt: $5,600 ($1,600 government student loan, $4,000 personal loan from friend)

How she did it: Ms. Rogers had $1,500 in scholarships coming out of high school and had saved a small amount before her first year. She worked 15-20 hours a week at minimum wage while taking five classes. In the summers, she worked through co-op programs in her field of study and made sure to put away enough money for school each fall.

Advice: "Be money smart, and only spend what you have … it's easy to push your bills aside and let it all pile up on you."

Briana Huether, 28

Degree: Graduating, Bachelor of Communications, Mount Royal University, Calgary, Alta.

Tuition: $6,400 a year, including ancillary fees, according to the university

Current debt: $67,000 ($62,000 government student loans, $2,000 credit card, $3,000 personal loan from family)

Plan to get out of debt: Ms. Huether already has a well-paying job (though not in communications). She hopes to work full-time and pay down her loans by $600 each month.

Advice: Though Ms. Huether says her debt is a bit intimidating, she would do it all over again. "Save some money before you go to school, and learn to cook." She adds: "I've learned a lot … I've changed a ton in the five years I've been in university. It was a good experience."

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