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Digging your way out of the cash crunch of university costs

Scholarships, bursaries and part-time jobs can help defray costs, but government student loans and grants are worth exploring, despite debt concerns.

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Many students face a cash crunch as tuition fees continue to climb and put a strain on the overall tab for postsecondary schooling.

The average undergraduate tuition in Canada rose to $6,373 for the 2016-17 academic year, with the province of Ontario leading the way at $8,114, according to Statistics Canada. Scholarships, bursaries and part-time jobs can help defray costs, but government student loans and grants are still worth exploring, despite concerns about building up massive debt or not even qualifying.

"You don't know what you are eligible for until you apply," says Steven Coté, director of policy and research for Ottawa's Canada Student Loans Program. "Visit your provincial or territorial financial assistance website to get an estimate. As long as a student [is] in need, they could be eligible to receive a non-repayable grant of up to $3,000. It's money that students don't have to pay back."

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Depending on the province or territory, the loan-and-grant programs have different wrinkles. Most participate in the Canada Student Loans Program, which provides 60 per cent of funding, while the rest comes from each jurisdiction. Quebec, Nunavut and the Northwest Territories have their own plans.

Recent changes to Ottawa's program aim to make university and college more affordable and debt loads easier to manage for students from low- to mid-income families. For the 2017-2018 academic year, the federal government has simplified eligibility rules. Based on criteria, which include family income and size, students need only contribute between $1,500 and $3,000 a year toward their studies.

Students now won't have to report their assets or income, which could have clawed back financial assistance in the past, Mr. Coté said. "They won't be penalized for working while at school." Exemptions to the fixed-contribution rate include students who are Indigenous or have a permanent disability, and those with dependents or who are former crown wards.

Starting this fall, there will also be a single eligibility threshold for grants. That threshold, which will vary by family size, will be set this summer. Last year, grants rose by 50 per cent over the previous year to $3,000 for low-income families, $1,200 for mid-income families and up to $1,800 for part-time students. With the new change, "no student should get less in grants than they got last year," he said.

Ottawa last year also raised the amount a single borrower needs to earn before repaying a Canada Student Loan to $25,000 per year. The threshold rises for a family of four to $59,512. The loan is payment-free for six months after leaving school or graduating. Borrowers who have difficulty making payments should apply to the Repayment Assistance Plan to get more flexible terms, Mr. Cote added.

Because tuition differs by province, student debt will vary. This past school year, Newfoundland and Labrador had the lowest average undergraduate tuition at $2,759. The low fee has attracted students from other parts of Canada to go there for postsecondary education, said Anne-Marie Roy, deputy chairperson of the Canadian Federation of Students, which represents 650,000 college and university students. However, "the average debt for a Canadian student is $28,000 after four years," she noted.

Ontario, meanwhile, has made changes this fall to its student-loan program by consolidating some existing government funding. Under the new Ontario Student Assistance Plan [OSAP], free tuition will be available to students from families with incomes under $50,000, or $30,000 for a single independent student when attending a public college or university in Canada.

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OSAP grants could end up equalling or exceeding actual tuition, or the average tuition in a high-cost program, such as engineering or dental hygiene. Still, some students could receive grants that are below average tuition cost if they have funds from other sources, such as a large scholarship.

Students from middle- or higher-income families could get grants, too, but they will not fully cover tuition. Grants are available to students from a family of four, and whose annual income ranges up to $175,000. But students can also opt to accept only the grants, and not take out a loan at all.

Patricia White (below), executive-director at Credit Counselling Canada, said that government loans and grants can certainly help finance an education, but the problem is students often do not keep track of smaller expenses – such as entertainment, hair cuts, clothing, and coffees – that can add up.

Patricia White, executive-director at Credit Counselling Canada Credit Counselling Canada Credit Counselling Canada

(Credit Counselling Canada)

"What often happens is that they run out of money before the end of the semester," said Ms. White. "They have no idea what their expenses will be besides tuition, books or residence. … Students have to learn what they need to spend money on, and how to manage that cost over time."

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Students fortunate enough to get a job after graduating should begin whittling down their government loan during the six-month, non-repayment period because that goes to reducing the principal, she said. "They should also look at paying an amount larger than the minimum payment because that extra amount, too, comes off the principal."

For students who do not qualify for a government loan, a student line of credit is another option, although a parent may need to co-sign. The advantage is that it offers flexibility because they can borrow the money needed, and pay back any amount at any time, said Robb Engen, a Lethbridge, Alta.-based fee-only advisor who runs a personal finance blog called Boomer & Echo.

Unlike a government student loan, however, interest paid on a student line of credit does not generate an income-tax credit, Mr. Engen said. "You don't have to pay back a government student loan while you're in school. However, most student lines of credit require interest-only payments as soon as the money is withdrawn."

A line of credit can also be a "double-edged sword as there's nothing stopping an undisciplined student from borrowing the entire amount of the line of credit," Mr. Engen said. "There is the danger in having the ability to borrow $15,000 per year as an undergraduate, and potentially digging yourself into tens of thousand of dollars in debt before you graduate."

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