by Victoria Scrozzo
Tyler Wells’s goal is to be debt-free by the time he finishes his business management degree in two years.
Wells has paid for three years of university tuition, two of which were at Ryerson, with his student line of credit and avoided slipping into the red as a result.
“I didn’t need a lot of money, so I opted for a student line of credit instead of OSAP,” Wells explains. “I can manage it better, budget better and every month I see what I’ve spent.”
Each year he borrows $5,000 from his Royal Bank student line of credit and uses his summer job as a tree planter in British Columbia to pay it off, leaving him debt free for the following year.
A student line of credit is essentially a loan from a bank. A line of credit makes a maximum amount of money available to a student, and depending on the bank, a full-time undergraduate student can borrow anywhere from $5,000 to $15,000 per year.
Student lines of credit are more flexible than OSAP. Unlike OSAP where you have to pay back the full amount you’ve borrowed, regardless of whether you’ve spent the money, with a line of credit you pay back only what you’ve spent. However, you are making monthly interest payments, which isn’t expected of you with OSAP.
At the beginning of the month, Wells takes $400 from his line of credit and puts it into his chequing account. At the end of the month, Wells is responsible for paying interest on what he has taken out of his line of credit, not on the total amount of his line of credit. Once students pay their monthly interest charges — and some of their principle loan — they have access to that money again.
Similar to OSAP, most banks offering student lines of credit will give a grace period of one year after the year you graduate, when you’re only responsible for paying off the monthly interest on the loan.
“With a student line of credit you pay off your interest while you are studying,” explains Taws Siddiqi, a personal banker from CIBC. “You have up to a year after you graduate before you start paying it (the principle) off.”
But a student line of credit isn’t an option for all students, says Siddiqi.
“If a student makes $10,000 in a year, they cannot apply for a line of credit. At CIBC you need to make at least $35,000 a year to be eligible, so most students have a co-signer, usually a parent,” says Siddiqi. A co-signer promises to repay your loan if you are unable to. Wells’s mother signed for his.”It seemed easier to get than OSAP. I’ve heard rumours of what a nightmare (OSAP) is. My roommate kept getting re-evaluated for OSAP,” says Wells. “With OSAP I would’ve received more money and I just would have spent it. I’m kind of being stingy, but in the end I won’t be so poor because of debt. Debt is not very appealing to me.”
… but which line of credit is best for you?
TD Canada Trust
Full-time students can borrow up to $8,000 a year for four years. Part-time students are eligible for half that amount and graduate students can qualify for an additional two years. After finishing or leaving school, you have twelve month cto pay, during which you pay interest only. After the grace period, you pay a greater of $50 or 1 per cent of the outstanding monthly balance.
RBC Royal Bank
Undergraduate students can receive up to $5,000 per year, and post-graduate students can receive up to $10,000 per year. RBC offers + 1 per cent (subject to change) interest rate. After you graduate, you’ll have another 6 months before you are required to repay any of the principle you’ve borrowed.
CIBC
This line of credit is only open to students in particular fields of study. Medical, dentistry, optometry and veterinary medicine students can apply for up to $125,000. Pharmacy, chiropractic and naturopathic medicine students can apply for up to $80,000. You pay 12 months after graduation or the end of residency, or 6 months after if you leave the program without graduating.
Bank of Montreal
Students can borrow $10,000 per school year, to a maximum of $40,000 over 4 years. BMO offers a prime rate plus 1 per cent. Pay only monthly interest payments on the money you actually use while in school and for up to one year after graduation. One year after you’ve graduated, monthly payments of principal and interest begin. You have a full seven years to repay the outstanding balance in full.
Each bank has restrictions on eligibility. For example, a co-signer is often necessary.
All information above was accurate at the time of publishing and may have since changed. Click the links for more up to date information on each bank’s line of credit policy.
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