Student Debt: How to Make Sense of the Lending ProcessJul 31, 2018
We know student debt is a big deal in Canada and some students are opting out of traditional government-based student loans. However, the process can still be confusing for parents and students who are navigating this for the first time.
In this podcast, Doug Jones, Licensed Insolvency Trustee from our Barrie office, offers advice to parents about the alternatives to federal or provincial student loans.
Here are some facts parents and students should know about alternative lending sources:
- Lines of credit
Parents can apply for a line of credit and allow their child access. Much like a credit card, a line of credit has a pre-set spending limit, but often with lower interest. A student can use the line of credit, repay, and continue to borrow up to the maximum limit.
Benefit: lower overall interest rate than traditional student loans
Drawback: interest will be owed each month when money is borrowed instead of after graduation, which is the case with a government loan.
A few things to note about a line of credit:
- Interest charges accumulate while your son or daughter is in school.
- Repayment terms are likely stricter than a government loan. This means that you or your child will need to start repaying the loan immediately after borrowing.
- Repayment assistance will be harder to negotiate.
- Non-government student loans
Some major banks offer these types of loans, typically held by the parents or held by the student and co-signed by parents. You may be able to negotiate the terms of repayment or the monthly repayment amount.
What parents should know before they co-sign:
If approval for the loan depends on a parent co-signing, it’s important to understand that parents are responsible for their child’s missed payments. Those missed payments it will negatively affect parents’ credit score too. In addition, if your child does not apply for a traditional loan through the government, such as OSAP, they could miss out on Canada Student Grants.
Parents, consider your own consumer debt. Could you afford to take on your child’s student loan debt if they were to default? If you really want to help your child financially but you’re concerned about your own debt, consider speaking to an LIT who can explain debt repayment options that could free up cash in your budget and reduce your debt.