Why You Should Take Out Student Loans

If you’re parents are like mine (pretty solidly middle-class) they raised you to have an aversion to debt. Don’t go into debt unless you absolutely have to was one of the only pieces of financial advice that was ever given to me. Now you can learn much worse behaviours than avoiding debt, but there are some big advantages to certain types of debt that my parents completely ignored. One of the biggest financial mistakes I made while going to school was NOT taking out some student loans money.

Good Debt and Cheap Money

What reason could you possibly having for taking out student loans if you don’t need them? After all, to listen to recent student-promoted propaganda you’d swear that student loans were single-handedly keeping the proletariat down in North America. The main reason is that student loans are free money. This means that someone else (in this case, the taxpayers) will pay off the interest on your loan for you as long as you are still a student. In the meantime you can do some interesting things with that money, and even more importantly, you become eligible for a whole pot of gold that would not otherwise be available to you if you didn’t take out student loans.

Related: Is It Ethical To Use Student Loans To Invest?

Use Incentives To Your Advantage

take out student loanEvery summer I’d come back from working a great job that I had worked pretty hard to get, and had worked some pretty decent hours at. Because of this income, I probably wouldn’t have been eligible for student loans anyway, but I was always confused by the incentives that our government gave students not to work. By giving interest-free loans, and then a bunch of grants to people simply because they didn’t find much work during the summer/during the rest of the school year, you were essentially providing a disincentive for people like myself to work really hard over the summer. The sad truth is that roughly 95-97% of student grants and bursaries are now awarded on the basis of “financial need” which directly translates into bureaucratic speak as: Do they have a student loan? For many scholarships and bursaries it doesn’t even matter how much your student loan was for. If you can only get a couple of thousand bucks, I would do it in an instant just to apply for all of these bursaries and grants. If your marks are B or better, I can almost guarantee you’ll get more money back than your loan consisted of. I have a problem on a philosophical level with a system that rewards merit so little, and creates so many disincentives to work, but that being said, I’m not above using the system to my benefit if I have to.

Related: How To Get Scholarships

If They’re Giving Out Money You Should Get In Line

It’s a little known fact amongst Canadian students, but if you qualify for near the maximum in student loans (your parents’ income is considered below a certain threshold, or you’re over 21 and consequently you no longer have to worry about your parents’ income) the government will automatically pay off a portion off the loan you took out. This is a great deal because it is literally people handing you tax-free income. If you take out the maximum provincial and federal loans, the government will pay you $250 per month just because you’re you! I would say that between this money, and the semi-automatic 2-3K in grant money you can easily receive if you keep your head up and looking for “financial-need related grants” at the student aid office, you could rake in $5K a year consistently, and potentially much more than that (especially if your marks and resume are good enough to look at some merit-based awards as well). All of that PLUS you get the interest-free loan to invest with, and/or use as an emergency fund while going through school.

Use Money, Don’t Let It Use You

I wrote a pretty extensive article about why I wouldn’t rush to pay down student loan debt either. No one can tell you what interest rates are going to look like more than a couple years out (scratch that, plenty of people will try to tell you, no one can accurately forecast that information), but for the time being it looks like the era of low interest is alive and well. When you combine this low interest environment with the fact that student loan interest is tax deductible, there is very little incentive to rush to pay back the money you owe the government. They are not loan sharks after all, and you should have other wealth-building priorities as a young person!

Don’t let old school clichés and psychology weigh you down when thinking about possibly taking on some student debt. Having a minus sign on one side of your accounting ledger really isn’t as big a deal as most people make it seem. It constantly amazes me how many people have large amounts of consumer debt (I should reiterate at this point, I am not saying you should take out student loans to buy a new TV or any other consumer luxuries!), yet can’t bring themselves to take on debt to buy assets or for productive reasons. Crunch the numbers to see if it all makes sense for you, but I fully encourage everyone (especially those of you over 21) to take a hard look at what the status of being “In Financial Need” can do for you!

 

 

About Kyle

Kyle is a high school humanities teacher by day, and freelance personal finance author by night. He has been published in academic journals, and has also co-authored the book "More Money for Beer and Textbooks". In his free time Kyle likes to limp up and down a basketball court and pretend to be a tough guy in a boxing ring.

8 Responses to Why You Should Take Out Student Loans

  1. Ross Taylor says:

    Loved this article – very informative thanks!

    Ross

  2. I don’t know much about the Canadian Student Loan system but this is not how things work in the United States. In the US unless you qualify for subsidized loans you do pay interest the entire time you have the loan taken out including when you are in college. My girlfriend had to take out loans and the capitalized interest from when she was in college made the loans grow like crazy. I wouldn’t wish that one anyone.

    • Teacher Man says:

      Ouch! Capitalized student loan interest? That is crazy. What a disincentive towards education. If you’re a middle-class family you must have to be disciplined to make sure your children can go to school without being crippled.

  3. Poor Student says:

    I will be over 21 at the start of the next school year. I have never heard of the government paying back a portion of you loan. Are you sure that it works for OSAP (Ontario). This would be the student loan I get. I have considered before applying for OSAP even though I don’t need it. I would invest it or if it was big enough just put it in a high interest savings account and pay back the principal after I graduate before the interest kicks in. I was interviewed by a Sun reporter who really made it seem wrong to take financial aid if you don’t need it. One the one hand I agree, but on the other hand I don’t know many people who don’t take advantage of every bit of money they can get from the big bad government.

    I wrote about this topic before at:

    http://poorstudent.ca/2012/02/14/osap-or-line-of-credit/

    • Teacher Man says:

      Hey Tyler, it is on the federal portion of your student loans. It is called the Canada Student Grant, and it replaced the Millennium program. You can check it out here: http://www.canlearn.ca/eng/postsec/faq/index.shtml#za. Here is what qualifies you as a “Low Income Student” http://www.canlearn.ca/eng/postsec/money/grants/lmit.shtml#low. I am fairly certain that after 21 you are considered an independent student if you live alone.

      I wrote an article on investing your student loans and it attracted some major attention. It is undeniably morally grey if not worse, but you know what, the government is going to take so much money from me over the course of my lifetime, and I can almost guarantee that I will never go on EI as a teacher, I would have no problem taking money back by any means necessary.

  4. I know you’re talking about the Canadian system here, but I just have to say THANK YOU. Student loans have gotten a horrible rap, and I couldn’t feel more differently. Sure, my school debt isn’t all that fun, but it isn’t unmanageable. I get tired of hearing people say “I can’t afford a college education.” Really? Maybe you just don’t want the debt, not that saying that’s a bad thing – it’s just a difference in priorities for some people.

    • Teacher Man says:

      If you manage the debt properly and take a degree in a field that actually pays you for your knowledge, then an education will likely be the best investment you’ll ever make.

  5. vtoolshop says:

    I would invest it or if it was big enough just put it in a high interest savings account and pay back the principal after I graduate before the interest kicks in. I was interviewed by a Sun reporter who really made it seem wrong to take financial aid if you don’t need it. One the one hand I agree

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