Student Loans – Jackpot! (Kind Of) Part 1 of 3

Most of you have probably heard the term “student loans” before in a few contexts.  The term is kind of amazing in that it means different things in different situations.  For example, if you are an 18-year old that just got told their bank account balance since their student loan came in, what you are really hearing is, “Round of shots on me!”  If you’re a 30-year old who is still living at home because they can’t repay their student loans and pay rent at the same time, the term student loan could be code for “black hole” or “crushing burden”.

Really, student loans have gotten a pretty bad reputation as student debt levels have climbed.  They are actually a pretty good deal when you consider the big picture.  So what the heck is a student loan?  A student loan is basically when the government lends you money, and pays the interest on that loan for you until you are done school.  In case you weren’t aware, in “the real world” when someone lends you money, they expect you to give them a little extra money on top of whatever they loaned you in return for the service of loaning you the money in the first place.  This is known as interest, and the amount of interest you have to pay is calculated as a percentage of the amount you borrowed.  This is how banks make money (well, it was before bankers watched too many Wall Street movies anyway).  So when you take out a student loan, someone has to get paid in order to bother lending you the money.  The government is nice enough to step in and help you out by paying the interest on this loan until you graduate and can manage for yourself.  Because paying the interest on thousands of student loans every year costs a fair amount of money, the government has set some pretty specific rules about who should be able to use student loans, and who has enough assets that they don’t need the government’s help.

Canadian students that apply for student loans are actually applying for two different types of loans whether they realize it or not.  The federal student loan program is administered by the National Student Loans Service Centre (NSLSC) and is available across Canada.  Most of Canada’s provinces also have a student loans program that usually runs parallel to the one offered up the NSLSC.  The general rule across Canada is that 60% of your student loan money will come from the federal government, and 40% from your provincial or territorial government.  Since Canada began offering student loans in 1964 it is estimated that 4.3 million students have received almost $32 billion in student loans according to Human Resources and Skills Development Canada.

It is worth noting fairly early in this article that while student loans are a pretty good deal, they aren’t as good as having no debt at all.  If student loans are used to pay for legitimate expenses that need to be covered as you push through your post-secondary journey, then I think few people argue that they have been used irrationally.  If loans are used to pay for a luxury trip to Banff or Mexico for spring break however, that is another story.  It is essential that you realize as a young adult that statistics are pretty clear on the fact you will likely live past 25 (despite what you feel like some Sunday mornings).  You need to take into account that student loans will have to be paid back, and that if you build up enough debt it can seriously cramp your style after you graduate for a long time.  There is no guarantee that a high-paying job is waiting for you, and that debt will have to be paid back regardless of everything else (student loan debt can even follow you through bankruptcy).  I know that when I was 18 I lived in a fantasyland where life after post-secondary education was a lifetime away, and my brilliant problem-solving strategy was to, “Cross that bridge when I come to it.”  We deal with young adults every day and we can safely say that this mindset is pretty much the default.  We’re not saying you have to map out life until you hit the retirement home, but thinking about the fact that one day you might not want to live in your parents’ basement or drive their family van any more is a pretty good start.

Canada Student Grants

When you apply for a Canada student loan, you are also automatically applying for a Canada student grant.  The financial aid and grants system was totally revamped in 2009 and the new version is automatically applied to all applicants without anything extra being done on their part.  The main difference between a Canada student loan and a Canada student grant is that grants don’t need to be paid back.  Your government is basically giving you money as long as you meet certain need-based criteria.  Every year roughly 250,000 Canadian students benefit from the grant program.  The amount of financial support you are eligible to receive through the grant program is dependent upon your family’s income status as defined by the federal and provincial governments.

To determine if your family meets the qualifications for “low-income” or “middle-income” status, check out the chart

A typical sample of a family with two children living in Ontario would have to earn under $43,285 to qualify as low-income, and $83,319 to slide in under the middle-income bar (all figures as of 2012).  There is a substantial range between provinces, so make sure and check what numbers pertain to you (or don’t bother, since it is automatically figured out anyway).  The good news for students that have been out of high school for four or more years is that your income will be considered “independent” and if you make less than $22,000 a year or so, you should qualify as “low-income”.

What is the benefit to achieving one of these statuses?  Well if you qualify as a low-income family in the eyes of the powers that be, you are eligible to receive a grant of $250 per month you are in school full-time.  Likewise, if you are considered middle-income you are eligible to receive $100 per month you are in school full-time.  The grant program also has specific allowance for people with permanent disabilities, people with dependants, as well as lower levels of support for students who are categorized under “part-time” status (usually a course load of less than 60%).

Why You Might Be Out of Luck

One serious flaw in the current student loan model is the no-man’s land that several students fall into if their parents make a decent chunk of money, yet are not prepared to financially help their children through post-secondary schooling for one reason or another.  Your parents’ income is applicable if any of the following conditions apply to you:

You are under 18 years of age

or

  • You have never been married or lived in a long-term common-law relationship (at least 12 months); and
  • You do not have any dependent children; and
  • You have not been out of secondary school for four years (48 months) or more; or
  • You have not been in the workforce for two periods of 12 consecutive months

If you are considered a dependent student the federal government and its little provincial government siblings expect your parents to contribute a fairly healthy amount of their “discretionary income” to help you through your studies.  The exact amount is dependent upon variables such as how many children are in a family, how many children in a family that are attending post-secondary education, the income levels of both parents, the province of residence etc.   Check out the Parental Contribution Calculator at  in order to get an idea of how the formula applies to you.  A common complaint across Canada is that a relatively high family income prevents students from attaining not just Canada student grants, but any student loans at all.

If you are thinking about misrepresenting (re: lying) any information on your student loan form, you need to know that the Canada Revenue Agency (CRA) does randomly select students for audit every year.  In other words, “taking your chances” is illegal, and you could face some fairly stiff penalties such as being forced to pay the entire loan back with interest, or even criminal prosecution if fraud is determined to have been deliberate and fairly serious.  If your parents both make decent wages, yet have decided you need to pay for school independently – well, you’re basically out of luck.  Go to our article on student lines of credit for some other options you may wish to pursue.

Stay tuned for our next part of our student loan series on Tuesday!

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