Choosing the appropriate student loan structure can be a complex and difficult decision. Yet not as difficult as fully understanding what the loan entails or the full responsibilities associated with paying the loan back. With the costs of your child’s secondary education being one of the biggest investments you’ll potentially make in a lifetime, it’s important for them to comprehend this significance and guide them on how to pay it back promptly. Read on to find ways to help your teen navigate student loans to ensure they don’t end up in a load of debt that impacts their financial stability in the future.
How much should your teen borrow?
The minimum. Your teen should be utilizing as many bursaries, grants, and scholarships that they can since majority of these options do not have to be paid back and can help curtail the overall cost of tuition. New rules set for 2017 will further help students and their families. Depending on their financial situation, borrowers can get approved for grants that include reduced monthly payments and in some cases no tuition costs. Ottawa has also increased the amount available for grants – an increase of as much as 50% for some. There are options worth investigating to greatly reduce overall tuition costs.
What type of loan is best?
Government loans are the usually the best option. Provincial loans for instance, offer a delay before the interest starts to accumulate and includes a longer repayment period. After graduation if a student is having difficulty making the payments, they can apply to the Repayment Assistance Program for help. Also, graduates won’t have to start repaying loans until they make at least $25,000 a year, and for families of more than five people that number increases to $67,825 under the new legislation.
You could also opt to engage in bank loans or lines of credits. Even though these are harder to obtain after the economic downfall in 2008, you may still be eligible for a student line of credit. These are based on the prime lending rate, and currently the rate is attractive, but if the rate rises in the future, so will the interest rates.
How to plan a repayment strategy?
Work with your teen to start saving while in school. Many graduates believe they will get a high paid job when they finish school, but this is rarely the case. It may even take months or years to obtain a decent workable salary.
So before or while the loan interest is accumulating, they should have some money put away to start combating those monthly payments. Also, work with your teen to plan out a budget before they enter school. Knowing how much they can reasonably spend each month will ensure they won’t overspend while impacting their future goals and financial security.
How to get money back?
At the end of each year you should also employ the Canadian Revenue Agency tax credits. The CRA allows students to claim a tuition tax credit for the interest payable on the student loan. Unfortunately, they are phasing out the federal textbook and education tax credit. The CRA, however, does ensure that the scholarship exemption remains unaffected by the elimination of the tax credit.
Navigating student loans can be a complicated endeavor for students. Give your child a good head start by guiding them through the process. Teach them how to budget and prioritize in order to pay that debt off as quickly as possible so they can start their future off on the right foot. Your financial advisor at The Beacon Group of Assante Financial Management Ltd. can advise on other education planning strategies to meet your child’s education goals.