Alternate Aid Options
Government-Sponsored Student Loan Refresher
For some students, government student loans are an option to pursue their studies, but they are not available to everyone. Government student loans are awarded based on demonstrated financial need and you must meet the criteria in order to qualify for assistance to fund your post-secondary studies.
The main advantages of government assistance are:
• You are not responsible to repay the loan until six months after you complete your studies.
• As a student, the government pays the interest on your behalf.
• Many governments have programs available to help you manage your student debt if you are having difficulty repaying your loan.
The downside of this type of financing is that the debt is accumulating as you need to apply for each year of studies. And in many cases, when you complete your studies, you will end up with two loans - a Canada student loan and a provincial student loan. This is because the federal government funds 60% and the remaining 40% is funded by the provincial student loan program.
Since government assistance is not an option for all students, the good news is that many banks, trust companies and credit unions have developed a loan program specifically for students. In some cases, it may be a loan or it may be a credit line.
Alternative Loan Options: Loan vs. Credit Line
How does a loan differ from a credit line? Well, when you take out a loan, you are responsible for repaying the interest right away on the whole amount that you have borrowed. A credit line allows a little more flexibility. You arrange the amount you need and withdraw it when you need it. This way, you only pay the monthly interest on the amount outstanding, not on the entire limit. You can usually access your credit line by using your debit card, through banking machines, telephone or internet banking or by writing a cheque. And you can repay it any time, say if you have a part-time job or a great summer job. The advantage of repaying it is that you will save money on the interest costs.
How much can I borrow?
The amount you can borrow ranges from bank to bank, but in many cases it's between $5,000 - $6,000 per year to a maximum of about $20,000. We suggest that you develop a plan outlining how much you will need for tuition, books, school fees, living expenses, and transportation as well as how much money you have coming in through employment, parental assistance, savings, etc. and present it to the bank. This will show the bank that you are serious and have given great thought about financing your education.
What is the interest rate?
Many financial institutions give students a break on the interest rate they charge. As a student, the interest rate charged is a floating rate priced at Prime + 1%. And as mentioned earlier, you only pay the interest on that amount that is outstanding each month. For example, if your credit line is set up for a maximum of $5,000 but you have only withdrawn $2,000 of it, you will pay the monthly interest on the $2,000 not the maximum.
Who is eligible?
While criteria vary, here's what financial institutions look for:
• Proof that you enrolled in a recognized post-secondary institution
• Canadian citizen or landed immigrant
• A satisfactory credit rating*
• Income to repay*
*Since many students do not have a credit rating or the income to qualify for a bank loan or credit line, a co-signor such as a parent or guardian will be required to support your application.
Repaying back the credit line or bank loan
In many cases, financial institutions allow a grace period whereby you can expect to pay the monthly interest only for approximately 6 to 12 months. After that, you will need to meet with your financial institution to make arrangements to begin repaying back the loan or credit line. Many financial institutions are generous and permit you take as much as 10 years to repay the loan or credit line.
Applying for a credit line or loan
You can simply contact your financial institution about their program for students or visit their website. Some are listed below:
Bank of Montreal (BMO)
Bank of Nova Scotia (Scotiabank)
Canadian Imperial Bank of Commerce (CIBC)
Royal Bank of Canada (RBC)
Toronto-Dominion Bank, The (TD Canada Trust)