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.
Use Incentives To Your Advantage
Every 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!