It’s inevitable – university students are saying good-bye to their beloved educational institutions carrying a heavier burden than ever before. With the average debt level at $37,000 for Atlantic Canadian scholars, it’s no wonder the idea of leaving your alma mater may leave some with a panic attack.
Like Tiffany Doucet. She’s a recent graduate of St. Thomas University and although she’s planning on going back to school next year, she will have to start paying off her loan in November.
“I am worried about having such a high amount, which is relative because I know a lot of people that have more loans than I do, but for me it’s a lot of money,” she said. “I don’t worry about it on a day-to-day basis because there is not much I can do about it that would be able to dramatically pay it off and relieve the burden.”
Many students are in Doucet’s situation and at this point, there’s not much that soon-to-be graduating students can do about it except learn how to deal with the consequences of overly expensive post-secondary education. Let’s keep our heads up and move forward. Here’s how.
According to Tamara Kelly, director of education at Credit Counselling Services of Atlantic Canada, you’ve got to start thinking about your financial goals.
“It’s kind of tough. We all go to school hoping we’re going to have a good income leaving,” Kelly said.
But whatever your job may be after graduation, you must ensure you’re taking in some sort of income. Then start your homemade, financial plan with your income as the beginning figure. It’s a guaranteed income – how much money you’re sure you will be raking in.
Then record your expenses. Write down everything you spend in a 30- or 60-day period.
“Assess what you’re realistically going to be spending,” Kelly said. “Map it out. What does it look like?”
Your money-in must be more than your money-out, she said. The expenses cannot exceed the income.
Especially since what’s left will go towards your debt repayment.
“You do not want to have to rely on credit as an escape,” she said. “The credit that you owe is going to continue to rise.”
Another helpful hint? Start paying it off right away.
Federal student loans begin piling on the interest May 1 after your fourth year, even though they give you six months before making you pay your first payment. Provincial student loans don’t begin adding interest until Nov. 1.
The interest rate is multiplied by the original amount you borrowed. At the beginning of the repayment process, students can pick either a fixed interest rate (one that stays constant) or floating one (decided by the mean interest rates of the five largest banking institutions, which varies).
According to Canada Student Loans, as of March 2011, interest rates sat at 5.5 per cent for the floating rate and 8 per cent fixed.
While you are a full-time student, the Government of Canada pays the interest on your federal student loan. But this ends on May 1.
That’s why Carolyn LaFrance decided to start paying her loan off right away. She graduated from Mount Allison University in May, but decided to get a jump start on paying it back.
“This is a good idea because you can lower your daily interest rate before you have to start paying it back,” she said. “So for example, my interest rate on my National Student Loan was $2.75 a day when I started making payments and I now have it down to 80 cents a day which is great.”
Some students opted for a student line of credit instead of applying for a government student loan. A line of credit works similarly to a bank account – you only borrow what you need.
Alexandre Morote, Bank of Montreal branch manager on University of New Brunswick’s campus, said sometimes this is a better option for students rather than a lump sum, especially since you make minimum payments while in school.
“[University] is one of the best investments you can make,” he said. “But it’s not a responsibility to be taken lightly.”
At BMO, representatives sit down with each student to talk about what’s an appropriate amount. They offer a maximum of $15,000 for the first year and $10,000 each consecutive year for a total of up to $45,000 after four years of studying.
This begs the question – what’s an appropriate amount to borrow in the first place?
“More often than not, there’s not that much discipline in student banking,” Morote said. “We always help students along the way. It’s a case by case basis.”
Students aren’t meant to live an extravagant lifestyle. An extravagant lifestyle now may mean living a much less extravagant life when it comes time to pay off your loan.
“Most people that I have talked to are still paying back their loan and they have been out of school for eight to 10 years,” LaFrance said. “For example, I know a guy who is still paying his loan back and he has actually paid back double what he borrowed.”
Let’s make sure we aren’t doing that. Morote said they always encourage students to also work on a continuous savings plan where they can put a little bit in an account when they can and it’s there for them when they need to pay something off. Like their student loan.
“Just making minimum payments does not make the loan go down,” he said. “The conversation is so important, we make sure students understand all this.”
Many students don’t know about the help they can get when paying their loans off.
One option is the Repayment Assistance Plan. This is available to borrowers who have a difficult time paying back their loan. The plan ensures the former student only pays back what he or she can afford. In some cases, they won’t have to make any payments until their income increases. However, enrolment in the Repayment Assistance Plan is not automatic and those interested must apply.
Marissa Rignanesi, investor education coordinator with the New Brunswick Securities Commission, says graduated students should look at what their options are and where they want to be.
“An important first step is to kind of have a bit of a financial plan in your head before you approach a financial advisor,” she said.
Something to consider is investing.
“Keep your financial goals specific,” Rignanesi said.
The Securities Commission has lots of resources online that can provide you with information on this possible money-making endeavour.
“It’s a good place to start to get in the mindset,” she said.
Go to canlearn.ca to learn more or apply for the Repayment Assistance Plan. Or visit BMO on campus to discuss a possible continuous savings plan.
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