Should I get a student line of credit or a student loan?

This need not be an either/or decision. Many students get government-sponsored loans and then arrange a bank line of credit if they need more money. As explained here, there are two types of government loans: federal and provincial. Here are the major differences between them and a student line of credit (LOC) from the banks:

• The LOC is more flexible in that you can borrow only what you need and make repayments in any amount at any time. If you do not qualify for credit on your own, you will need a co-signer who becomes responsible for the outstanding balance if you default.

• The government loan has a fixed interest rate. The LOC rate is based on the prime rate, which fluctuates. If you compare rates today, the LOC rate will likely be lower, but there is no guarantee that it won’t float higher over time.

• The government loan requires no payments while you are in school. You can then delay payments for 6-30 months depending on your situation. The LOC often (but not always) requires you to pay interest monthly, even while in school. Some lines of credit offer grace periods of up to a year after graduation before you need to begin repaying the principle on your loan

• Interest paid on a government loan generates an income tax credit. Interest paid on a bank’s student LOC doesn’t. Many students do not realize this until it’s too late.

Many schools have arrangements with banks that offer student lines of credit. The financial assistance office at your school might be able to provide a loan versus LOC comparison for your specific situation.

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