Financing your education can be a challenge. From government loans and grants to bank lines of credit and registered savings plans, the number of choices can seem overwhelming and, frankly, scary. Figuring out how to pay for post-secondary education or dealing with student debt after graduation is becoming more commonplace. But you don’t have to damage your finances forever in order to pay for an education. We walk you through how student loans work – from borrowing while in school, to repaying once you graduate, to refinancing your loans down the road.
Around 40-50% of students go into debt to pay for their education. But the appeal of getting cash now can potentially blur the reality of having to pay it off later. Canadians collectively owe more than $25 billion in government student loans alone (which doesn’t even include private loans).
The average university student is said to graduate around $26,000.00 in the hole. On top of that is the grim reality that a degree or diploma doesn’t have to same power to land you a job as it might’ve had decades ago. Don’t rack up debt without really thinking about it – make sure you know exactly what you’re getting into. Take the following steps to decide if going into debt is right for you:
Calculate what your repayments will be after you graduate. Approximate what type of income you’ll need to make these payments while covering other basic life expenses. Can you realistically support the cost of your debt?
Figure out how long it’ll take to pay off your debt. This is based on how much your payments will be. It’s good to calculate the effect that increasing and decreasing your payment amount will have on your overall debt repayment plan.
Calculate the total cost of your debt. This means adding up the amount of interest and fees you’ll be out-of-pocket until the loan is fully paid back. The longer you take to pay off a loan, the more expensive it’ll be.
Alternatives to debt could include taking time off to work or working part-time while studying. You may also want to consider attending a less expensive school or cutting down costs by completing the first part of your program at a community college or via distance education. Talk to a financial advisor or your school advisor to make sure you understand the full cost of getting a loan and to get help putting together a viable plan to pay it back.
Government loans and grants
Students can get both loans and grants from the government. Eligible students will receive 2 separate loans: a federal loan (Canada Student Loan) and a loan from the provincial/territorial in which they reside. Despite being separate, both loans are disbursed together and repaid through a combined monthly payment plan, so you won’t have to worry about managing 2 separate sets of funding. Canada Student Loans are administered through the National Student Loans Service Centre (NSLSC).
Interest rates on government loans are very competitive, and you have the option of choosing either a floating or a fixed interest rate. All student loans have a floating interest rate by default, but you can change to a fixed-rate once you enter repayment on your student loans. However, once you’ve made this switch, you can’t change back to a floating rate.
According to the Government of Canada website on March 19, 2020, interest rates are as follows:
The floating interest rate: Prime
The fixed interest rate: Prime rate + 2%
*For Canada Student Loans issued before 1 August, 1995, the interest rate is: 3.125%.
This information is current as of March 19, 2020.
Government grants and loans are open to Canadian citizens, permanent residents and “protected persons” (people who have been granted special status by the government because they are at risk of being persecuted in their home countries due to race, religion, nationality, membership in a social group, or political opinion).
In addition, students must:
Reside in a province/territory that’s participating in the Canada Student Loans Program
Be attending a recognized postsecondary institution
Be enrolled in a degree, diploma or certificate program that’s at least 12 weeks long within a period of 15 consecutive weeks
Be enrolled in a minimum workload:
Full-time students. Must be enrolled in at least 60% of a full course load as defined by their school (40% for students with permanent disabilities)
Part-time students. Must be enrolled in at least 20-59% of a full course load as defined by their school (20-39% for students with permanent disabilities)
Pass a credit check (if they are 22 years of age or older and are applying for the first time)
Maintain satisfactory academic progress
This information is current as of March 19, 2020.
For full-time studies, the maximum amount of funding you can receive with a Canada Student Loan is $210 per week up to a maximum of 340 weeks (or 400 weeks for doctoral students). For part-time studies, there is no limit to the number of weeks you can get funding, but there is a lifetime maximum loan amount of $10,000 including both principal and interest.
The actual amount you’ll get is based on the government’s assessment of your “allowable costs” minus your “resources.” If you have savings, investments, a job or other resources, you’re expected to use these to an extent to help pay for school. Your loan amount can vary based on whether you live with your parents, are a mature student, identify as Indigenous and a range of other factors. Generally, though, the calculation is as follows:
Allowable costs – Your resources = Assessed financial need
This information is current as of March 19, 2020.
Canada Student Grants are available for full-time students, part-time students, students with dependents, students with disabilities and students from low-income families. Maximum amounts generally range from $1,800.00 to $3,000.00 per school year depending on the type of grant.
Some grants are calculated according to a maximum monthly amount, like the Canada Student Grant for Full-Time Students with Dependents, which offers up to $200 monthly per dependent child per school year. The Canada Student Grant for Services and Equipment for Students with Permanent Disabilities offers up to $20,000.00 per school year. See the Government of Canada website for more information on federal grants for students.
As mentioned, government student loans are a combination of 2 separate loans: Canada Student Loans (from the federal government) and provincial/territorial loans. Grants are also handled separately at the federal and provincial levels. The amount you’ll receive varies depending on each province/territory’s terms, policies and budget decisions.
To find out more about funding in the province or territory in which you reside, check out the relevant student aid office below:
Although exact policies can vary between provincial/territorial student aid offices, the process is generally as follows:
1. Create an online account.
Visit your provincial/territorial student aid office website to do this. You may have to follow extra steps to verify your account.
2. Access the online application.
Fill in your profile information with your name, residential address, phone number(s), email, birth date, Social Insurance Number (SIN) and other relevant details. This information is typically saved to your account, so you don’t have to input it again on future applications, although you may be asked to review it and make changes if required.
3. Input your program details.
This could include the name of the school you will be attending, the length of your program, the cost of attendance, the cost of your books and supplies and other details. You can find many of these details on your school’s website.
4. Input your financial information.
To determine the amount you’ll get, the student aid office will probably want to know if you’ve been working, if you will work during the school year, how much you’re making (from Line 150 of your most recent tax return) and where you’ll living as a student. (Will you be living on campus? Commuting? Paying rent? Living with your parents for free? Supporting your own family?)
Besides determining your costs, personal details can also help determine how much you and your parents/spouse/common-law partner are expected to be contributing to your education. You may be asked other questions as well, like whether you have any disabilities, how much you have in savings accounts/RESPs/RRSPs and whether you identify as Indigenous.
5. Review and submit your application (then play the waiting game).
Some (though not all) websites may provide you with an immediate estimation of your funding. You typically have to wait weeks, possibly even a month or two, before receiving an official funding decision – this is why it’s important to apply as soon as the application becomes available online.
6. Receive a funding decision.
Your funding decision will break down the amount of loan and grant money you’ll get and when the money will be disbursed. At this point, you may be asked to sign a loan agreement and submit it either by mail, fax or through your online account. You’ll probably have to provide your bank account information for direct deposits (if applicable) and so the student financial aid office can withdraw payments when you’re out of school.
Funds are often disbursed in multiple payments throughout the school year, rather than all at once. Depending on your age, whether you’re going to a school outside your province/territory and other factors, you’ll either receive your funding directly or it’ll be sent to your school’s financial aid office, which will process the payment and give you any excess funds.
Banks, credit unions and online lenders all offer financing solutions you can tap into as a student. While the government typically offers a greater range of funding options designed especially for students, loans from private lenders are usually quicker and more flexible. However, it may be harder to qualify.
Student lines of credit
Student lines of credit are commonly used as an alternative when you don’t qualify for government loans or need more money. Issued by banks and credit unions, a line of credit is an amount you’re approved to borrow and can be accessed via online banking or in person at a local branch. (You can’t access these funds with a a debit or credit card.)
For full-time students, amounts generally fall between $10,000-$20,000 per year up to a maximum amount based on your level of study, i.e. certificate, diploma, degree, masters or doctorate. Credit limits will be lower for part-time students.
If you don’t touch the money, then you have no repayment obligations and aren’t charged any interest. But as soon as you withdraw from a line of credit, the amount withdrawn becomes a debt owed to your financial institution – interest immediately begins to accrue and you’re automatically required to make monthly repayments. Be aware that having a student line of credit could affect how much you’re eligible to receive from other sources like scholarships, bursaries and government loans.
Proof of residency including your current residential address and the addressed of places you’ve lived over the past several years.
Where you work and your income. Bring 3-6 of your most recent pay stubs or your Notices of Assessments from the past 2-3 years).
The amount you pay towards rent or a mortgage.
A list of your existing debts including how much you pay each month. This includes personal loans, lines of credit, credit cards, car payments etc.
Information on your usual expenses such as utilities, property taxes, insurance fees etc.
Proof of enrollment, which could consist of a letter from your registrar or a copy of your class schedule.
Social Insurance Number (SIN).
Personal and financial information of your cosigner (if required) including his or her employment details, contact information and SIN.
Government loans vs. student lines of credit
Not sure whether a government loan or a student lines of credit is right for you? Here are the most important differences between the 2 options: most provinces and territories, you’ll get a lower interest rate with government loans, but student lines of credit offer flexible, plus you only pay for what you use.
Student line of credit
Usually lower than a student line of credit; often lower than most other forms of credit.
Usually higher than government loans; often lower than most other forms of credit.
Starts after graduation; there is often a grace period around 6 months before you start repayment.
You must make interest-only monthly payments during school. Principle repayment starts after graduation; often there is a grace period of 6-12 months before you start repayment.
Flexibility of funds
Usually split into multiple disbursements released at scheduled times. Your school is typically paid first, after which, you’re given excess funds to spend elsewhere.
Funds are available very soon after approval and can be used for whatever you want. It’s your responsibility to make sure that your school gets paid.
Application wait time
Apply 6-8 weeks before your study start date. Funds are typically released when you start school (institutions usually accept late payments from students who are expecting to receive government loans).
Unless additional information or documentation is required, an application decision is often reached with several business days. Funds are released almost immediately or within a couple of business day.
Usually no. These loans are unsecured.
Unless the student has a significant income and can be approved independently, a cosigner will be required. Student lines of credit are unsecured.
Most students who need financing turn to government loans or student lines of credit. Because these are designed just for students, you can usually get a lower interest rate and more favourable repayment terms. However, if you don’t qualify for either option or need extra funds, you could apply for a personal loan from a bank, credit union or online lender.
Personal loans can be either secured (with collateral) or unsecured (without collateral) and require that you have a healthy credit score and a decent income. If you don’t, you may be able to increase your chances of approval with a cosigner, as long as he or she makes enough money, has a good credit history and doesn’t mind assuming the risk of your loan should you default.
Personal loans typically range from $2,000.00 – $50,000.00, and interest rates that can vary from 3.00%-36.00%. Your rate is based on your income, credit score, existing debt load and other factors. Terms generally last 1-7 years. Because interest accumulates over time, a shorter term will cost less but come with higher principal payments, while a longer term will cost more but come with lower principle payments.
Flexible spending. You aren’t restricted on what you can use the money for.
Many lenders to choose from. Banks, credit unions, online lenders and other private financial institutions offer personal loans, so you can shop around and find the best deal for you.
Requires an income (and/or a cosigner). Working while in school can be challenging. Plus, your income may be too low to apply without a cosigner, in which case, someone else has to assume the risk of your debt.
(Usually) Higher interest rates than traditional student loans.
Not designed for students. Unlike traditional student loans, you usually have to start paying back personal loans right away – payments don’t go down during the school year, and you won’t get a grace period upon graduation.
Compare personal loans
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Is it okay to use a credit card or short-term (payday) loan to pay for school?
Financial products designed for students often come with lower fees, lower interest rates, flexible payment options and other benefits designed to accommodate students’ needs. Payday loans and (most) credit cards aren’t designed to help students pay for school and are much more expensive and unforgiving when it comes to repayment.
Besides the drawback of requiring an income, payday loans come with astronomically high interest rates ranging from 380%-780% (you read that right). This puts borrowers at risk of falling into a cycle of debt by regularly borrowing to pay off their existing loans. You should not rely on payday loans to help pay for school. In the case of a financial emergency, make every effort to avoid this option by exploring all other sources of funding first.
Many credit card providers offer student credit cards that offer little or no fees, a competitive interest rate and sometimes even cashback or rewards points on your spending. While advantageous for travelling, shopping online and covering small, unexpected expenses, these cards will quickly become expensive and burdensome if you use them to carry sizeable, long-term expenses.
Speak to a bank representative, a financial aid officer from your school or someone from your provincial or territorial student aid office to learn about financing options that work for you.
Other sources of funding
A Registered Education Savings Plan (RESP) is a long-term investment account that lets people (usually parents and grandparents) save up to $50,000.00 for a child’s education. Money deposited into an RESP grows in 2 (or possibly 3) ways:
Funds are put towards either fixed investments (i.e. short-term bonds, GICs and investment savings account) or equity investments (i.e. stocks and mutual funds). Interest earned on these investments is not taxed.
Through the Canada Education Savings Grant (CESG), the federal government matches annual RESP contributions by 20% if the the future students receiving the funds are 17 or younger. The CESG applies on the first $2,500.00 of annual contributions (or $5,000.00, if unused contribution room from previous years is carried forward) up to a lifetime limit of $7,200.00.
Through the Canada Learning Bond (CLB) program, children from low-income families will get up to $2,000.00 in RESP contributions from the federal government. This is not a matching program – no personal contributions are necessary to get the CLB.
Contributions to an RESP are not tax deductible. Withdrawals from an RESP for educational purposes are called educational assistance payments (EAPs) and count as part of the student’s annual taxable income. Should funds go unused and get returned to the contributor, he or she can receive the funds without paying additional tax.
A Registered Retirement Savings Plan (RRSP) is very similar to an RESP in that it’s a long-term investment account designed to save for the future – in this case, old age. Again, similar to an RESP, money can grow tax free, but withdrawals are taxable. However, one crucial difference between the 2 types of accounts is that contributions to an RRSP are tax deductible.
Because RRSPs are designed to help people save for retirement, withdrawals before you reach 71 years old are heavily taxed. But there are 2 circumstances in which you can withdraw from an RRSP prematurely: to buy or build a home (under the Home Buyers’ Plan) and to help fund your education (under the Lifelong Learning Plan).
Under the Lifelong Learning Plan (LLP), you can take up to a certain amount out of your RRSP yearly to pay for full-time training or education at a designated institution for yourself, your spouse or your common-law partner. Withdrawals cannot be used to cover training or educational expenses for your children or your spouse/common-law partner’s children.
Most educational institutions in Canada will qualify as “designated institutions,” as will many institutions in the US and abroad. As of 2019, the maximum yearly withdrawal limit is $10,000 up to a total limit of $20,000 (once you reach this, you’ll have to wait a while to withdraw again).
According to CBC, millions of dollars’ worth of scholarship money goes unclaimed each year. Often, students assume they need very high grades or that they have to jump through an insane number of hoops to be awarded a scholarship. In fact, the majority of scholarships are not merit-based and may not take more than a few hours to apply for.
While this could seem like a long time, the results could really pay off, even if you only win a few of the awards you apply for.
There are several established companies that produce robust online databases tracking scholarships and bursaries available in Canada. You can browse through thousands of scholarships worth millions of dollars on the following sites:
Short answer – loans have to be paid back, but grants don’t. A loan is usually paid back with interest, meaning you pay extra for the convenience of borrowing money you don’t have at the moment. A grant is free money. You can keep it without any fees and without having to pay it back.
Repaying your loan
After your study period ends, you have to begin paying back your loan. Often, student loan providers will give you a 6-12 month grace period to find a job and start earning money before your loan goes into full repayment mode.
The amount you pay is based on your loan agreement. Usually, your provider will contact you shortly before the repayment period begins with a notice detailing how much you need to pay and when payments are due – this may not always be the case, however, and ultimately, you’re responsible for making payments in full and on time. If you don’t, you could incur extra fees and other penalties.
Acceptable methods of payment may differ between providers, but often, lenders will debit directly from your account after you give them your bank account information. Alternatively, you may have to set up your lender as a “bill payee” on your online bank portal and transfer the money yourself. Lenders may also accept cheques, but you’ll have to contact your lender to find out for sure.
When life happens and unexpected circumstance hurt your ability to pay back your loans, you have options – especially if you have government student loans. Making payments on time and in full is key to maintaining a good credit score, which helps you in many areas of life like getting a car, buying a home, supporting a family and travelling.
Negotiate a better repayment plan with your lender
One surprisingly effective – but easily overlooked – solution to managing debt is to contact your lender(s), explain that you’re struggling financially and ask if they’ll agree to a new payment arrangement that’ll help you meet your obligations. Be sure to explain any specific factors or circumstances affecting your ability to pay (i.e. illness, unemployment, emergency expenses etc.).
Lenders would rather work with you than risk losing money, so you may be offered an extended term with lower monthly payments, a different interest rate, permission to make a late payment without penalty, deferred payments or some other solution. By doing this, you could protect both your wallet and your credit score.
Refinance your loans
Student loan refinancing involves taking out a private loan with a lower interest rate and/or more favourable terms to wipe out your current debt. Then, you can begin making repayments on your new loan with a clean slate and possibly improve your credit score. Your ability to secure a better deal on a new loan will depend on your creditworthiness, income, job history and educational background, among other factors.
One drawback is that student loans already tend to come with lower interest rates than most credit products, so it may be difficult to find a loan that lets you save money. However, if you have non-student debt such as credit cards, car loans, personal loans or mortgages, refinancing those could save you money on interest, which can then be applied to your student loans.
Refinancing may be a good option for your if:
You have good credit. You can usually get lower interest rates on private loans if your credit score is over 650. Request a copy of your credit score from Canada’s 2 main credit bureaus, Equifax and TransUnion (fees apply).
Your income exceeds your debt. You’ll typically get better rates if you have a low debt-to-income ratio, because it shows that you make enough money to afford repayments.
You don’t have government-issued student loans. Most of the time, government loans are cheaper and easier to repay than private loans. Refinancing might be a better idea if you’ve used private financing to fund your education.
You have a job and a steady source of income. You’re more likely to be approved for better terms if you can show that you have a steady stream of money coming in to meet your minimum payments. To verify your income, refinancing lenders may want to see 3-6 months’ worth of your most recent pay stubs or Notices of Assessment for the past couple of tax years.
Government repayment assistance plans (for federal and provincial student loans only)
The following repayment assistance measures are available if you’re struggling to make payments on your federal or provincial loans (see the Government of Canada website for more information):
Deferred repayment for low-income graduates. Since 2016, students don’t have to start repaying their government student loans until they make at least $25,000.00 a year.
Repayment Assistance Plan (RAP). Login to your National Student Loan Service Centre (NSLSC) online account, and fill out an online to see if you qualify for a reduced or $0 monthly repayment for 6 months. This benefit is also available for borrowers with a permanent disability.
Severe Permanent Disability Benefit. If you have a severe, permanent disability, you may be eligible to have your loans forgiven through the Severe Permanent Disability Benefit.
Revision of Terms. If you’re unable to repay your student loans, you can request that your payments be decreased. If you want to pay off your loans faster, you can ask that your payments be increased.
Canada Student Loan Rehabilitation. If your government student loan is in collections, Canada Student Loan Rehabilitation may be able to help you out.
Canada Student Loan Forgiveness for Family Doctors and Nurses. You could be eligible if you’re working as a family doctor, family medicine resident, nurse or nurse practitioner in an under-served rural or remote community. This only applies to the federal (not provincial) part of your student loan.
No, a legitimate lender should not ask you to pay any funds upfront. In many provinces, it is actually illegal for a lender to request any money upfront. If a lender charges an origination or processing fee for a loan, they will typically deduct it from the loan amount. If a lender is asking for a prepaid card loaded with funds or for you to pay loan insurance, you should look elsewhere for a loan – it’s likely a scam. You should also be aware that loan insurance is never required.
Refinancing involves paying off a single loan with a new, less expensive loan; this usually involves getting a lower interest rate and/or better terms. On the other hand, debt consolidation involves combining multiple loan types into one, affordable, easy-to-manage payment plus refinancing for better terms.
It depends on the type of student loan you have. Generally, only government loans offer deferral, which you give up if you refinance your student loan with a private lender.
Since most undergraduate students don’t have a credit score yet, it’s common for a cosigner – such as your parents – to sign on with you for financing. As long as you meet the eligibility requirements, you could be approved for a loan with or without credit.
You can if you meet your lender’s credit requirements. Generally, you’ll need to have good credit and a certain salary if you apply without a cosigner, which, unfortunately, is something most undergraduate students don’t have.
Refinancing a student loan can actually improve your credit in the long run by adjusting your monthly repayments to something you’re more likely to afford. However, it may damage your credit slightly in the short run because most lenders conduct a hard pull on your credit report during inquiry for the application process, which causes your score to temporarily dip around 5-10 points.
Stacie Hurst is an associate editor at Finder. She earned a degree in psychology and writing but studied a number of other subjects in university including business and political science. Stacie loves giving people the tools they need to make knowledgeable and successful decisions. Her personal interests include writing, personal finance, web technology, photography and anything creative!
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