Student loans. Those are loaded words. For some they mean a chance at higher education. For others it means long-term debt. Let’s take a closer look at the weight of student loans.
First, know that some debt is good. Debt that can lead to a more positive long-term outcome, or debt that results in a far greater net positive financial return, is good debt. For example, a mortgage – the equity you build and the appreciation on the value is what homeowners aim for. It’s similar with student loan debt. Higher education leads to more choices and stability in a career.
For some, a student loan is the only way to achieve higher education. During the 2016-2017 school year, more than 81,600 Albertans received a student loan or grant, averaging $14,400 per person. Statistics Canada’s (2016) Canadian Income Survey shows, “Canadian families and unattached individuals had a median after-tax income of $57,000.” A healthy income can make paying back a student loan very manageable.
Debt can be a struggle. Global News reports that more than 70 per cent of Canadians regret their student debt. It is important to note that student debt and student loans are two different things. Students in the Global poll also talked about purchasing vehicles or turning away part time work during school. However, the results are the same – worries about paying off the loans, and the debts, can be mentally and financially crippling.
The penalties are severe. Defaulting on loans affects your credit rating, making it harder to finance a vehicle or home later in life. The loan could be sent to a collection agency. Any government refunds you are eligible for, such as GST or income tax, could be automatically routed to pay down your loan. In some cases the government may even take legal action against you. Think you can escape the stress by declaring bankruptcy? Think again! There are very stringent rules for discharging student loans under bankruptcy; in most cases you will still be required to pay back the loan.
For some, the weight of student loans is compounded by the stress of paying them back.
Get the best of both worlds by planning ahead
To offset the weight of student loans, plan ahead.
A Registered Education Savings Plan (RESP) is one of the most effective tools for offsetting the cost of higher education. However, this often relies on your parents or benefactor(s) setting one up for you. Young adults should consider opening a RESP for their children. The earlier you open one, the more interest and grant money it will attract.
Working while in school doesn’t sound like fun, but a part time job can cover essentials like rent, food, and bus passes. Going into debt for things like groceries compounds the amount you have to pay back after graduation. If you have the chance to reduce your living expenses during the summer months (living with parents or roommates, for example), summer job income could be saved to offset living expenses during the school year.
Another option is to start your career and go to school part time. Between apprenticing, continuing education, and online classes, many students find this middle road a way to stay on track financially while getting the higher education they need.
There is no way around it – college or university is costly and for some, going into debt to fund it is the only way to achieve the career they want. Whether you go all in for full-time studies and live off of student loans, or choose a path of work/school/sacrifice, planning ahead and budgeting will help you achieve your goals.