Published on February 11, 2014 | by Kate Schreiter Photography by Deanna Wilson0
How to save as you spend
As tuition costs continue to rise, some students think of student loans as part of the university process. Recent Humber graduate Brian MacIntyre said that, to him, debt and a diploma came hand in hand.
“To me, being in debt just seemed normal – that’s how I was going to get through school. I wanted to go to college and that was the only way I could.”
Coming from a family with five siblings, MacIntyre didn’t have any financial help from his parents for his post-secondary education. Like many students across the country, MacIntyre had to borrow money to be able to afford his education
But this is nothing new. According to the Canadian Association of University Teachers, federal student loan debt reached more than $15 billion in Canada in 2013. The Ontario Student Assistant Program (OSAP) helps students in Ontario who can’t afford post-secondary education on their own. Students are also able to take out loans from their bank instead of through the government.
MacIntyre applied and got accepted by OSAP. He said it was a weight off of his shoulders – at least when he first received it.
“It was great to finally have all this money in my account. I knew it was for school, and I knew it wasn’t really mine, but I wasn’t thinking about when to pay it back as soon as I got it.”
TD Financial Advisor Sonia Sharma said that one of the most common money mistakes students make is that they simply spend their money where they shouldn’t.
However, with the right advice and discipline, debt doesn’t have to be the only option. Sharma said there are many ways to manage and even avoid student debt altogether. It can sometimes be as easy as having more than one bank account.
“Every time a student comes in to see me, I don’t just open one account. I always suggest a savings account as well, either for a rainy day or if you want to go on vacation. It is just money that’s kept separately so you know you’re saving for something,” said Sharma. “If they just keep one chequing account, they’re seeing all this money in one place and think they can just spend all of it on X, Y and Z.”
But if a student is already in debt, money management is about more than just having a savings account. If a student has OSAP loans and a credit card, Sharma recommends paying off OSAP fees first.
“OSAP interest rates are always higher than the banks. OSAP has a floating interest, which means you’re paying more, so pay that back first while making the minimum payment on your other loans. Most banks have a grace period for six months after graduation where you don’t have to pay interest anyway.”
It is also possible to sign up for a credit card strictly made for students. These cards have no annual fee and a limit of one thousand dollars. However, these do have a large interest rate of 19.99 per cent, so it would be best to avoid taking out a student line of credit if possible.
Sharma said that the old saying is true – it’s never too early to start saving. She said that if a student has no debt, it’s not too early to even consider a Retirement Savings Plan (RSP). However, if a student does have debt, paying that off should be their number one priority.
“If the person has a lot of student debt and they want to pay that off, then I would say pay off the debt first because the interest you’re going to earn on the RSP is not going to be as high as the interest you’ll be getting charged.”
MacIntyre admits that one of the main reasons he is in debt after graduating is because of short-term thinking.
“I guess if I planned a little bit better I would be in a better situation financially right now. Now that I have the stress of trying to make my next payment, I’m working hard to get rid of my debt before I do anything else.”