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Getting smart about student loans

Be honest, fearless and forward-thinking about what you need and how to pay it back.

Jess Morgan 20 January, 2017 | 6:00PM
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According to Statistics Canada, undergraduate students paid an average of $6,191 in tuition in the 2015/16 academic year, up from $5,998 the year before. If you're making plans to go to university or college, you may be thinking about taking out a student loan to cover that amount, to say nothing of housing, food and clothes. In that case, it may worry you that according to a 2015 report from the Canadian University Survey Consortium, between loans from the government, the bank and family members, the average graduate finishes school with a debt load of $26,819.

Now before you trash your plans and decide to become a professional YouTube personality, take a deep breath: You can handle this. Paying off a student loan comes down to three things: thinking long-term; being honest about your choices; and never being afraid to look at your finances. To help you do those things before, during and after your university years, we've compiled some proven tips.


When making post-secondary plans, pick your course of study with a financial outcome in mind. You don't have to pursue a degree just to become rich, but you do need an idea of how much your degree will help you earn. Look into statistics like the average income of entry-level employees in your desired industry and graduates from your desired program. You should also have a sense of how crowded the job market is; in some fields, like law and education, there are far more graduates than there are entry-level jobs.

Once you've decided which post-secondary program is best for you, it's time to calculate the true cost of your loan. First, estimate how much you'll need to pay for tuition and living expenses; that will help you determine how much you need to borrow, and how much of it you'll use over the course of your studies. Online tools, such as Scotiabank's Student Budget Calculator, can help you determine what you're really paying for, beyond the sticker price of your tuition and fees.

Next, make sure you know the rate of interest on your loan, plus the amount of time you have to pay it back and how often you'll need to make payments. Use a calculator like this one from CanLearn.ca to help determine your monthly payment and your total interest costs. Having these numbers in mind early will help you understand the financial impact of your loan and decide if it's the best way to invest in your education.


At this stage, the most important things to do are study hard, take advantage of networking opportunities and be nice to your classmates: You never know who will turn out to be helpful in your job hunt. But don't lose sight of what you spend while you're getting ready to earn. Make sure your expenses are in line with the estimates you made before starting school. Take a close look at your bank statements each month; they'll help you keep track of how much you're spending on new shoes and nights at the bar. You don't want to run out of money before the end of the year and be forced to hit up your parents for help -- or worse, borrow more.

One source of extra cash is your school itself. Most colleges and universities offer a variety of bursaries and awards based on financial need, plus scholarships based on academic performance. What's more, schools are often required to give away bursary money by a certain deadline, and find themselves scrambling for applicants when too few students consider the option. Visit your school's financial aid office -- you may be surprised how much free money is available.


A common mistake is to feel richer than you really are when you start receiving regular paycheques. It's natural to want to buy something ridiculous to celebrate that first career-track job. But don't start developing the sort of lifestyle that might force you to put off your debt repayments and let interest build up. Living below your means early in your career allows you to live it up later. Once again, keep an eye on your bank statements and add up how much you're spending on shopping, dining out and entertainment. Don't guess -- you may underestimate yourself. If you need help keeping track, the TD MySpend app can provide extra insight into your spending patterns.

When you get your first job, the first thing you'll look for in your contract is your salary. But don't let that number fool you. Your company may pay you $40,000, but after you factor in taxes and deductions like the Canada Pension Plan (CPP) and Employment Insurance (EI), you may only take home $34,000. Focus on the numbers on your pay stubs--your after-tax earnings. Subtract your total monthly expenses from what you take home at the end of the month. What's left over gives you an idea of how much extra money you can devote to debt repayment. Using that number, figure out how many years it will take before the debt disappears completely, and set a target for how much debt you want cleared by the end of each year. To be extra-careful, assume your earnings won't change between now and then (although they certainly might).

In a few years, if you have children of your own, the best way to start saving for their education is to open a Registered Education Savings Plan (RESP) right after your child is born, and contribute to it regularly afterward. A 2015 survey by the Chartered Professional Accounts of Canada found that 47% of Canadian parents have not opened an RESP. Plan to be one of the 53% who have.

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About Author

Jess Morgan

Jess Morgan  Jess Morgan is the associate editor of Morningstar Canada’s website. She began her career as a television producer and freelance writer, often making appearances on TV and radio as a commentator on politics and culture. She holds a BA in communications from the University of Winnipeg and a diploma in Creative Communications from Red River College.

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