Borrowing for your education

As education costs climb ever higher, sometimes the only way to keep up is to borrow money. Fortunately, there are a number of solutions, including government loans and lines of credit, designed to help students. Remember, though, debt is a four letter word that needs to be used wisely.

How much should I borrow?

Before applying for a loan, you’ll need a budget. First, estimate how much the upcoming school year is going to cost you. Tuition, books, transportation, living and accommodation costs all need to be included.

Then, determine how much money you’ve saved and how much you expect to earn during the school year.

If you’ve saved enough to cover your costs, congratulations. You’re in good shape. If not, you may need to borrow.

Before you borrow, think about how you’ll pay off the loan. Are the terms okay? Can you handle the monthly payments? If not, you'll need to look for alternate ways to finance your education, reduce costs or maybe think about attending school part time or once you have saved more.

What are my borrowing options?

In most cases, government student loans are your best bet. You don’t pay principal or interest until you finish your studies, so they’re easy on your wallet. Plus, if you have trouble paying back the loan, you may be able to get some of the outstanding balance waived.

If you don’t qualify for a government loan, a student line of credit might be the way to go. A line of credit works much like a regular loan. Even though the terms are not as good as a government loan, they’re usually better than other personal loans.

Remember, you can also "borrow" from your, or your spouse's RRSP, using the Lifelong Learning Plan. Unlike normal RRSP withdrawals that are taxed as income in the year of withdrawal, LLP withdrawals are not immediately taxed. If you repay them to your RRSP within the allowed time, no LLP withdrawals are added to your income.

Give yourself credit

A credit card is another possibility. But, credit card interest rates on unpaid balances are very high. So, try to use a credit card sparingly and pay it off in full every month.

Used responsibly, a credit card can improve your credit rating, and make you a better candidate for future loans. The best way to show lenders that you deserve the opportunities that being granted credit provide you, is to be responsible with your existing credit:

• limit how many credit cards, loans and lines of credit you apply for and use (to keep your credit rating high)
• always pay your bills on time - even just the minimum payment
• borrow only what you can repay - remember, you're spending your future income, so limiting what you spend now means more financial flexibility later
• work out a budget and routines to control your spending
• if you get an unexpected windfall, try using at least part of it to prepay some of your debt
  

If you have no previous credit history, you may find it easier to apply for your first credit card from a retailer (like a gas station or department store). Once you demonstrate you make the required payments on time and stay well below your credit limit, getting a Visa or line of credit may be easier.

And remember that a secured Vancity Visa is a great way to tap into the convenience of having a Visa card, without having to qualify for credit.