On Campus

How do I manage my student loans?

Julian Benedict, co-founder of the Coalition for Student Loan Fairness, describes what to expect both before and after graduation

Are you considering your first student loan? Are you nearing graduation and worried about making those first payments? Maclean’s

spoke to Julian Benedict, spokesperson
for the newly formed Coalition for Student Loan Fairness, which is an
organization recommending changes to make the student loan system better, to
find out the ins and outs of student loans.

Maclean’s:
What should students consider when applying for their
first student loan?

Julian Benedict:
Sit down with your family and find out if any kind of a
fund can be set up to help reduce the total amount of money you will have to
request from student loans. Find out if any arrangements can be made in the
family because the interest rate is quite high on student loans so ideally you
can get funds from other sources.

If you do have to get a student
loan, open a folder and keep everything: any paper work and notes about anyone
you speak with the student loan group.

In recent years, most student loan
applications are done online so the process is relatively simple. The question
that remains is how much money you will receive. That is based, if you are a
young person, on how much your parents make.

M: Do you
have any tips for applying and getting as much funding possible?

JB: Most bursaries
are given on the basis of whatever unmet need you have. So if your program is
$4000, for example, and you don’t have any savings, the government may give your
all of that but you will still be required to come up with additional costs to
cover the costs of living. So usually bursaries only cover whatever you did not
receive in loans.

The issue that is of most concern is whether you own a car.
There is a special section in most applications that ask how much your car is
worth and that can sometimes affect your application.

Our experience has been that people who apply for the first
time are the least likely to guess what you are going to get. Once you are in
the system and you apply for loans each year, the amount that you will get is
usually more stable.

Assume that you will receive less
than you’ll want and budget accordingly.

M: What
other types of loans should you consider other than government loans? What are
the advantages and disadvantages?

JB: For small loans
and convenience loans, we recommend that you get a student credit card because
it allows you to build a credit rating, which will be important for future
endeavors. Usually you can apply for those when you first attend
classes—there will be applications around campus. They will only give you
a small amount of credit so it is a good way to have a little emergency funds
available to you if you need them.

The statistics show that more and more students are getting
loans from various places outside of government student loans. We always
encourage students to incur the least amount of total debt. When all those
loans become due, when you graduate, it is going to become very difficult pay
all of them.

M: What
about interest rates?

JB: In terms of
private institutions, your interest largely depends on whether your parents or
another party can guarantee your loan. A lot of banks offer student lines of
credit but they are often at high interest rates and if a parent is able to
guarantee your loan or borrow it on equity of their house, they are obviously
going to pay a lower interest rate than what you are going to pay alone.

Student loan borrowers pay very high interest rates compared
to other countries. You could be paying anywhere from 8.5 to 11 per cent on
student loan interest when you graduate.

M: What
are the advantages for going with the government loans as opposed to bank
loans?

JB: If you
experience difficulties after you graduate, there are government programs to
help you. There is interest relief and debt reduction programs that are not
offered through banks. You are also able to declare a percentage of your
student loan interest annually on your taxes, which you can’t do with a private
loan.

Having said that, these programs are not as good as they
should be and the student loan interest rate is high. We always recommend
taking the money that you need but no more.

M: What
about during study?

JB: For government
student loans, there is no interest while you are studying [which is different
than private student loans]. However, if you break from doing your studies for
more than six months, then you will go into repayment. It is important to know
that if you’re going to take a year off school in the middle of your studies,
then you are going to have to start repaying those loans at least partially.

Lines of credit generally have monthly obligations to
maintain those loans. [So you have to pay interest during study.] It really
depends on the creditor that you are going with.

M: What
types of things can high school students do to prepare in advance?

JB: There are many
scholarships and bursaries out there for students who are part of athletic
clubs, academic clubs, and so on. In fact, if your parents belong to some
unions, there may be special scholarships and bursaries. You should research
scholarships and bursaries online that you might be qualified for. High school
students should be thinking early on about how they can be involved in
extra-curricular activities to start generating opportunities for scholarships
and bursaries.

M: Tips
for saving money during the academic year?

JB: Self discipline.
Set up a monthly budget. As the term goes on, you might spend a lot more money
at the beginning of the term and then find that you don’t have enough to finish
your school year. Find out how much you are getting and divide it over the
year. Then make sure you stick to that budget.

M: Convocation
is coming! What should I do?

JB: Recent
statistics have shown that 64 per cent of student loan borrowers do not know
that they are charged interest during the six-month grace period following
graduation. A lot of people are not prepared for the interest that they are
going to pay.

When you finish school, find out how much you owe at that
time and then go to the Canlearn.ca website and add that figure into the
repayment calculator they have online. That is going to tell you exactly how
much you are going to owe on a monthly basis and how much interest you are
going to have to pay over the life of the loan. What that allows you to do is
get a sense of what you are going to be paying and start budgeting immediately.

If you can pay any money towards your loan during the
six-month grace period, it’s always good to do so because you are going to be
paying interest during that entire period, which is going to be added to your
total loan at the end of the six months. That can almost be like a three or
four per cent premium on your loan.

If you move or you are anticipating moving in that six
months, make sure to contact the student loan centre to give them your updated
address or you may want to give them your parents address or somewhere you know
will always be stable so that you don’t lose any material.

M: What if
you can’t get a job right away or you don’t have enough money to pay?

JB: Wait until you
get your consolidation papers. After six months you are going to receive a
contract both provincially and federally depending on where you are. It’s going
to say how much you owe and when your first payment is due. You need to fill
out that information and send it in. As soon as you have done that, contact the
loans centre, let them know that you have forwarded your contract, and you want
to find out about interest relief. What they are going to do is send you the
application for that program as soon as you are eligible. So essentially you
can’t apply for interest relief until you are in the system and technically
repaying.

If you can, find out how much your total monthly payment is
and get some overdraft protection on your bank account for that amount. It’s a
small thing to do but it is a safety step just in case a payment is taken out
when you least expect it.

M: If you
have outstanding interest, what can you do?

The number one rule with interest relief is that you haveto
apply early and don’t wait until you get behind. Once you’re behind, it’s hard
to get back into the system because they want you to pay that outstanding
amount before you can apply. If you anticipate a problem, call them early and
get the process started so that you don’t end up in trouble and in default on
your loan.

M: What
are some of the misunderstandings that happen?

JB: Remember that
the student loan is one of the few debts in Canada that you can’t get out of
paying. You’re not allowed to declare bankruptcy for many years on student
loans and they will garnish your tax refunds and anything to come after you.
It’s very important to treat it as a serious debt as you would another loan.

M: How can
defaulting affect your credit rating?

JB: Each of the
federal and provincial loan programs report to the credit bureau usually once a
month. So if you do go behind and you don’t apply for interest relief, your
credit rating can be affected right away. That can stay on there for at least
six years. It is important to understand that they will report your payment
history to the credit bureaus quite regularly.