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What You Need to Know About Student Loans

Students holding up caps at graduation.

In today’s world, it feels like obtaining a post-secondary education is essential for landing the career of your dreams. But those hefty student loans that come with it? Not so much. And while you spend hours studying to ace your exams, don’t forget to prep for another important test: life after you graduate. Preparing a solid financial plan for life after school can have a significant impact on the financial stability of your future. With student loans now taking an average of 10 years to repay after graduating, consider the following things as you plan your return to school.

Budgeting is Key

Planning a budget while you’re in school is one of the best ways to ensure you’ll be in a better financial situation when you graduate. Many students don’t take the time to prepare a budget while they’re attending school, which can lead to regrets when they enter the workforce. In a 2017 poll of Canadian post-secondary graduates, 3 out of 4 wished they made better informed choices when taking out student loans, and 30% regretted not properly budgeting during their time in school.

Pay close attention to how much money you use from your student loan or line of credit because it is easy to rack up more debt than you should. It can be tempting to have extra money at your disposal, but remember – this is all money you’ll have to pay back, and with interest.

When budgeting, remember to include the additional costs associated with school. Along with tuition, the cost for course textbooks can be upwards of $800 to $1,000 per year . Buying your textbooks used, or sharing a textbook with a classmate, can be budget-friendly ways to save money on this expense. Also factor in any student fees that are included in your tuition costs to fund things like campus clubs, health services, and recreational facilities, as these fees can be as much as $2,000 per year . It is important to find out which fees you can opt out of so that you are not paying unnecessarily for things you don’t need or use. For example, if you have health benefits through your parents, you can opt of the University health plan which could save you hundreds of dollars every year.

Living expenses are another essential part of your budget. If you decide to live away from home, you’ll have to plan for the higher cost of living. There are several factors to consider when determining what will work best for your personal financial situation. For example, living in a campus residence can be expensive, but you will save on transportation costs. Living off campus can be cheaper if you share accommodations with roommates, but you’ll have to be mindful of associated costs including utilities like heat, hydro, and internet.

A smart budget will also consider how much of your money should go towards food and entertainment. Think about your habits. Do you tend to eat out a lot? Do you have a busy social life? Good meal planning can help you to save money because you’ll be less tempted to eat out when you’re short on time. And being conscious of your spending by opting for more nights in with friends can keep you in line with your budget without cutting into your social life.

Loan Repayment Plan

For many post-secondary students, paying down student loans after graduation will be a reality. According to the Canada Student Loans Program, the average debt load in 2016 was $13,306 – an increase of 4.1% from 2015. By preparing a budget now– and sticking to it – you’ll be more successful in managing your debt load.

If you are a full-time student with a loan from the Ontario Student Assistance Program (OSAP), you will have a 6-month grace period before you start making student loan repayments. Student loans through financial institutions, also known as student lines of credit, work differently in that you are required to pay interest on the money you’ve borrowed, even while you’re in school. After completing your studies, most institutions will offer a 6 to 12-month grace period where you continue paying interest only. After this time you will be expected to pay the principal in addition to the interest.

Being smart now about how much money you borrow, and not being tempted to max out your loan if you don’t need it, will enable you repay your loans much faster. So, too, is taking advantage of the grace period to save money for your future student loan repayments.

Income Potential of Your Future Career

In addition to a budget, preparing a good financial plan for your education requires you to think about your future career plans. How much money do you anticipate to make in your chosen field when you graduate? Your ability to repay your student loans will be determined largely by how much you borrowed, and the salary you’ll make after graduating. Consider the salary ranges for your chosen career by researching online job sites like the Canadian Job Bank . This site allows you to compare occupations and their wages across the country.

Also give some thought about where you plan to live for your career. Some careers will require you to relocate, or live in a city where the cost of living is higher. You’ll want to make note of how these additional costs may affect your budget for student loan repayment. And there’s no worry if in time your career plans change. Budgets can always be adjusted for your current situation. Having an overall picture of what life will look like outside of school will set you up for a more stable financial future, one where you’re not burdened with significant student debt.

Education is essential but student debt doesn’t have to be.

If you have been out of school for more than 7 years and your student loan is still overwhelming, it is possible to file for bankruptcy or make a consumer proposal and include the student loan debt in the filing.

Contact us today for more information about how our Licensed Insolvency Trustees can help you.

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