Alternate Aid Options

Conceiving, drafting, and revising great applications to win you the award.

By Matthew Butler

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 to qualify for assistance in funding your studies.

The main advantages of government assistance are:

• You are usually 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 is that debt accumulates — you need to apply for each year of your education. This can add up fast. 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 provincial student loan programs.

Since government assistance isn't an option for all students, the good news is that many banks and credit unions have developed loan programs for students. These take the form of loans or lines of credit.

Alternative Loan Options: Loan vs. Line of Credit

How does a loan differ from a line of credit? Well, when you take out a loan, you are responsible for immediately repaying the interest on the whole amount that you have borrowed. A line of credit allows a little more flexibility. With the bank, you arrange the amount you'll need access to, and withdraw it when you need it. This way, you only pay the monthly interest on the amount outstanding, not the entire loan. As a bonus, you can repay it any time — maybe you have a part-time job or a great summer job. The advantage of repaying early is money saved on interest costs.

How much can I borrow?

The amount you can borrow ranges from bank to bank, and may depend on your credit score. 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. Present your budget to the bank when you apply. This will show the bank's decision makers that you're serious 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%. As mentioned earlier, you only pay the interest on that amount that is outstanding each month. For example, if your line of credit 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 you've withdrawn, not your maximum limit.

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 necessary to qualify for a loan or line of credit, a co-signer, such as a parent or guardian, will be needed to support your application.

Repaying back your line of credit or bank loan

In many cases, financial institutions allow a grace period whereby you can expect to pay the monthly interest only — without also paying back the actual money borrowed — for about 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 line of credit. Many financial institutions are generous and permit you take as much as 10 years to repay your loan. Of course, if that's your plan, beware of interest charges!

Applying for a line of credit or loan

Contact your financial institution about their program for students or visit their website. Some are listed below:

BMO (Bank of Montreal)

Scotiabank (Bank of Nova Scotia)

CIBC (Canadian Imperial Bank of Commerce)

RBC (Royal Bank of Canada)

TD Canada Trust (The Toronto-Dominion Bank)