Facts about student loans:
- Federal student-loan debt in Canada is now more than $15 billion.
- Provincial loan programs estimated to be as much as $8 billion.
- On Average postsecondary students graduate with more than $26,000 in debt.
- Graduates in B.C. have seen this number increase to nearly $35,000
- The aggregate of loans disbursed by the Canada Student Loans Program, less the aggregate of loan repayments received is resulting in student debt increasing by $1 million per day.
- Tuition fees tripled from $2,243 in 1990 to $6,610 in 2014
- Canada has the 5th highest tuition fees in the world
The situation in Canada shows an alarming trend amongst indebted students:
- In February 2013, the government wrote off $231 million in unpaid student loans from more than 44,000 cases
- This puts the amount of uncollected student loan debt more than half a billion in recent years
The situation in the US has now reached crisis levels.
- The amount of outstanding student debt has reached $1 trillion.
- Student loan debt in the US is higher than credit card debt
- 35 percent of student loans in the US are delinquent, the lowest repayment rate the Department of Education has ever seen
The amount of debt many graduates are leaving school with means they are delaying big life decisions such as buying a car, buying a house, getting married and having kids. This ultimately has an effect on us all and the overall economy. It also means many of our children are rethinking higher education, pursuing different options and living at home longer after school to try and pay off their student loan debt. For many parents it means postponing retirement and taking on additional debt to help their children through school.
Let me give you an example.
- Finish high school
- Graduate from University
- Join the workforce.
He was 38 years old and had $40,000 in student loan debt. Since graduating from university he had been unable to pay down and incurred an additional $40,000 of consumer debt trying to pay back his student loans while still meeting his general living expenses. He rented a house 45 minutes away from the school he taught at as he couldn’t afford to rent or buy in the higher end neighborhood his private school was located. This meant that his transportation costs for the car payment, gas, insurance, maintenance, exceeded $700 per month.
His gross income was approximately $60K.
His debt repayment has now risen to over $2200 per month.
Despite a deep desire to do so he has not been able to enter the housing market as he has been unable to pay down his debt or save for a down payment required to qualify for a mortgage. He is reluctant to marry his long standing girlfriend as he fears he will not be able to support a family based on his current situation.
For the average Canadian our greatest asset and source of wealth is our home and often retirement is funded by downsizing and releasing equity in a home.
What are the options and can this be avoided?
In my opinion every student should only take on a student loan when they have fully researched the potential long term impact and the realistic anticipated outcome of the earning potential of their career choice. When taking on a student loan you are investing in your future and as with any investment the potential risks and returns should be fully understood. It is recommended that each potential student complete a “business plan” or ‘education plan’ before taking on any student loans. This should include a full understanding of the following:
What is the total cost?
This should include all tuition costs and living costs. Don’t under estimate the ‘recreational’ costs of being a student to keep the numbers low, you need to be realistic. Are you able to live at home or can you live with a roommate.
Are there any grants or scholarships available?
Student loans are an option but they have to be paid back. Grants and scholarships, on the other hand, are free but many students never take the time to apply so many are never paid out to students. Students should be encouraged to look for as many grants and scholarships as possible.
What are your options to borrow?
Federal loans offer many advantages over private loans. So ensure you understand what you can qualify for and what the terms of the loans will be.
Will the loans require a co-signor and what risks (if you cannot pay the loan back) are you putting the co-signor in? A co-signor is never released unless the debt is paid in full so make sure you can repay the debt on your own terms and you have the required after school income to repay the loan.
Finally, make sure you understand when the loan must start to be repaid?
What will I earn?
a. What is the expected first year’s salary?
This should also breakdown what percent of your net monthly income you need to pay down the student loan debt.
What is your estimated fixed living costs when you start work and does this fit with the plan to repay the debt.
b. What is your earning potential?
You need to estimate the annual increases you can realistically expect in the industry you plan to enter as you gain experience in your chosen field?
Is your chosen course something you are passionate about?
Studies have show those entering into a field they are passionate stay in that field longer and are more successful. Have you spent any time with someone already in this field. There are many opportunities to speak to other professionals who have been in the same shoes as you. Are they happy? Have they been rewarded financially for their investment into their education?
How transferable is your education?
If you find you do not want to work in the field you received your qualification in is it easily transferable to another industry or would you need to obtain further education and potentially incur further student loan debt to do so?
What are your personal and financial priorities?
Does the above figures allow you to meet those, ie. save for a down payment and qualify for a mortgage in the area you want to live?
What are your job prospects?
Have you researched the job prospects in your city, province, and in Canada? Will you be required to move away thereby increasing your living costs in order to obtain a job within your field?
Is there another way?
Can I get a job in my chosen industry and get practical work experience, get paid and study part-time?
Once all of this is fully understood an informed decision can be made.
