Pay Off OSAP ASAP?

[born2be_lazy]

Hey guys.

Here's my situation. I'm graduating in April '08 from University and have about $16k of OSAP in total from my 4 years in university. I will have about $25k of savings (some in high rate savings, some in mutual funds) when I graduate. I am also expecting to be earning $50-60k in gross income afterwards. I do plan on getting my MBA after 2-3 years I start working FT, but it should be covered by my current company.

Do any of you recommend paying off OSAP in full as soon as I can (as soon as I graduate), or should follow the monthly payment schedule?

Assuming the OSAP interest rate is approx 8.5-9%, is it better to pay it off asap... or use my money and try investing for a higher return?

From what I can tell, I should probably pay off OSAP in full as soon as I graduate... but maybe you guys have better insight!

If you guys need more info on the situation to make a better recommendation, let me know what you need!

Thanks.

EDIT:

- I have no other debt whatsoever.
- Changed the new interest rate... now 8.5-9% thanks BBQPorkBun

[codex]

I doubt your investments guarantee a 7% return, so not paying off your debt would be equivalent to investing on margin.

Definitely pay off your debt ASAP, then worry about putting money back into your investments from your income.

[ghostryder]

Assuming the OSAP interest rate is approx 6-7%, is it better to pay it off asap... or use my money and try investing for a higher return?


Well the interest on your student loan generates a tax credit so the effective rate is less than the posted rate.

7-(7 x (15.5 fed + 6.05 prov))= 5.4% effective rate. 6.05 is the prov rate for ON.

Readers in other provinces would adjust for their prov rate. For example the rate where I live is 11% so based on the same 7% my effective rate would be 5.14%.

So if you could get an investment that guaranteed more than 5.4% after tax then that investment would be better than paying off you loan.

If you have any other debt with a higher rate paying that off first would be better.

Also keep in mind your future purchases. If you plan on buying a car when you are done school it would make no sense to borrow at 7% to buy the car and pay off your SL. You'd be better off paying cash and keeping the lower effective rate SL.

[notanexpert]

I doubt your investments guarantee a 7% return, so not paying off your debt would be equivalent to investing on margin.

Definitely pay off your debt ASAP, then worry about putting money back into your investments from your income.

Remember that OSAP interest is tax-deductible. So your 7% will end up costing you below 5 probably. That should be VERY easy to beat by investing, over the longer term. Therefore, I disagree with codex, but do your math in terms of how much exactly your after-tax effective interest rate on the OSAP is.

Edit: Oops, i just noticed the post above seems to indicate 5.4%, but my conclusion still stands.

[born2be_lazy]

Interesting point about the car purchase... never thought about that.

Although I think I'll be waiting a year or two before I buy my first car after I graduate.

[BBQPorkBun]

Lets keep in mind osap interest is 8.5% and looks like its going up from how the market trends look.

[myapple]

Yeah, I don't know where the OP is getting 6-7% from...osap's variable rate is currently 8.5%. Might go a bit higher now that bank of canada's interest rate just went up 0.25% and even more in the near future.

[J_u_n_i_o_r_3]

Hey guys.

Here's my situation. I'm graduating in April '08 from University and have about $16k of OSAP in total from my 4 years in university. I will have about $25k of savings (some in high rate savings, some in mutual funds) when I graduate. I am also expecting to be earning $50-60k in gross income afterwards. I do plan on getting my MBA after 2-3 years I start working FT, but it should be covered by my current company.

Do any of you recommend paying off OSAP in full as soon as I can (as soon as I graduate), or should follow the monthly payment schedule?

Assuming the OSAP interest rate is approx 6-7%, is it better to pay it off asap... or use my money and try investing for a higher return?

From what I can tell, I should probably pay off OSAP in full as soon as I graduate... but maybe you guys have better insight!

If you guys need more info on the situation to make a better recommendation, let me know what you need!

Thanks.

EDIT:


- I have no other debt whatsoever.
Fast question osap gave you a student loan even through you had 25 grand?

Did they know
?

[born2be_lazy]

Yeah, I don't know where the OP is getting 6-7% from...osap's variable rate is currently 8.5%. Might go a bit higher now that bank of canada's interest rate just went up 0.25% and even more in the near future.

Oh yeah I really didn't look into what the rate would be. So 8.5% and upwards is a better benchmark. Either way, any advice? =)



Fast question osap gave you a student loan even through you had 25 grand?

Did they know
?

OSAP stopped giving me a loan this final year because I'm working in the summer and my brother is no longer a dependant child. I'll also be earning about $2-3k during the school year from grading papers and such. So that $25k is from previous osap, bursaries, this summer's earnings, and the school year's earnings + investments using osap $$ lol.

[dmxlite]

Thanks for posting this, born2be_lazy.
I'm kinda in the same situation. I'm in BC, and I have enough to pay off my BC student loan, but not the federal student loan. So I was also asking myself the same question, pay off BCSL entirely, or invest and make the monthly payments for both the loans.
The interest on the loans are tax deductible, but how much do we get back (credit from fed, or BC)?
I don't have the literature on me (doing a search now), but I'm hearing 17%, or by multiplying the lowest federal/provincial/territorial tax rate by the amount of the loan interest.

[terrybear]

pay off your loans asap .... the longer you let them continue to earn interest the more you will owe on them. Also if you pay off a large loan quickly it also looks good on your credit rating that way if you go to get another loan or go to buy a car it will make it easier on your aproval for it.

As for the bc person .... defiantly pay off the 1 that way if your left with the other 1 that is 1 less to be paying on. 1 loan payment is better then 2 :cheesygri

[tigger03]

I'm sort of in the same boat, but really don't understand much about my options.

- I have a $14,000 OSAP loan right now, and just graduated at the end of April.
- I was pre-approved for a $26,000 LOC with TD with prime+2% (i.e. 8.25% now since prime just went up).

Questions:
- at what rate does OSAP charge me their interest?
- would I be better off paying OSAP back all at once and gradually paying my LOC with the bank, or should I just make my monthly payments to OSAP once the 6 month grace period is over?
- I'm currently in the process of getting a job right now, so I don't really have any lumpsum that I can put towards my OSAP loan right now.

... any advice?

[dmxlite]

I think it's prime + 2.5%.

You can get a tax credit on your student loan interest, but not on the LOC.
So your effective rate is a bit less (see the posts above). This means you might finish paying off your student loans faster than your LOC (if all things are equal).

Thanks, terrybear. I want to get rid of as much debt as possible, but I want to make sure I'll be financially sound.

[Bullseye]

So that $25k is from previous osap, bursaries, this summer's earnings, and the school year's earnings + investments using osap $$ lol.

So you've been loaned money interest free (until you graduate) that you didn't need. Regardless of whatever else has been posted here, the ethical thing would be to pay it back immediately. Your interest-free period is being subsidized by taxpayers, who assume this money is being loaned to students who actually need it, not for investing and profiting from.

[Bullseye]

I'm sort of in the same boat, but really don't understand much about my options.

- I have a $14,000 OSAP loan right now, and just graduated at the end of April.
- I was pre-approved for a $26,000 LOC with TD with prime+2% (i.e. 8.25% now since prime just went up).

Questions:
- at what rate does OSAP charge me their interest?
- would I be better off paying OSAP back all at once and gradually paying my LOC with the bank, or should I just make my monthly payments to OSAP once the 6 month grace period is over?
- I'm currently in the process of getting a job right now, so I don't really have any lumpsum that I can put towards my OSAP loan right now.

... any advice?

Keep it with OSAP for sure. After tax, the rate with them is better, and it also gives you far more flexible payment options if you ever run into trouble.

[myapple]

Questions:
- at what rate does OSAP charge me their interest?
- would I be better off paying OSAP back all at once and gradually paying my LOC with the bank, or should I just make my monthly payments to OSAP once the 6 month grace period is over?
- I'm currently in the process of getting a job right now, so I don't really have any lumpsum that I can put towards my OSAP loan right now.

... any advice?

rate is probably around 8.5% - 8.75%. I would pay the osap monthly because they are much more flexible with payment and interest is tax deductable. Flexible in a sense that if you can't pay (i.e. lose job), the government will make interest payments on your behalf. No way a bank will do this for your LOC. However, you might get a slightly better rate with your bank's LOC...so you really gotta ask yourself whether the 0.5% (or whatever amount you'll be saving) is worth it.

[tigger03]

Thx for the advice, guys. I guess I'll leave the LOC alone and pay off OSAP with the monthly payments :D

[netriones]

Definitely pay of osap as soon as possible! 8.5% guarantee after-tax "return". where can we find that??(10% return from index fund is not guarantee)

[netriones]

rate is probably around 8.5% - 8.75%. I would pay the osap monthly because they are much more flexible with payment and interest is tax deductable. Flexible in a sense that if you can't pay (i.e. lose job), the government will make interest payments on your behalf. No way a bank will do this for your LOC. However, you might get a slightly better rate with your bank's LOC...so you really gotta ask yourself whether the 0.5% (or whatever amount you'll be saving) is worth it.


ya right, not if they "lose" your interest relief paper work or you used up all your allowable IR period. Then you'll in the #@!#@! of collection agency.

[tigger03]

8.5% guarantee after-tax "return". where can we find that??(10% return from index fund is not guarantee)

You totally lost me there ... I'm not very financial-term-savvy >:(

[Bullseye]

You totally lost me there ... I'm not very financial-term-savvy >:(

He's saying that you'd have a hard time getting a high enough return from investing the money to make it worth doing so over paying off a loan at 8.5%.

[myapple]

ya right, not if they "lose" your interest relief paper work or you used up all your allowable IR period. Then you'll in the #@!#@! of collection agency.
Hey, anything is possible...but i doubt losing paperwork is common practice. They usually send you confirmation letters that interest relief is either approved or not approved. If someone didn't get confirmation paperwork, just call and followup. It's not that hard.

Also, interest relief periods can be renewed/extended if necessary.

[TenzoR]

I'm paying it asap, who knows how high prime can go. I'm half way done hopefull by mid next year I'll be debt free :D

[greg123]

Definitely pay of osap as soon as possible! 8.5% guarantee after-tax "return". where can we find that??(10% return from index fund is not guarantee)

for anyone who cannot get a return of 10-15% from mutual funds, please go see a Financial Planner NOW

paying osap off now with such low interest is not a good plan, unless you really cant sleep at night with debt hanging over your head...

i do not want to get in this kind of argument again, since i just spend my whole lunch hour educating my co-worker why he should finance a car vs buying it in one shot.

[codex]

for anyone who cannot get a return of 10-15% from mutual funds, please go see a Financial Planner NOW
Just because the markets have been on fire in recent years does not mean that future years guarantee the same level of returns.


i do not want to get in this kind of argument again, since i just spend my whole lunch hour educating my co-worker why he should finance a car vs buying it in one shot.
Many would disagree with your opinion... I hope your coworker isn't too gullible.

[Sylvestre]

Oh yeah I really didn't look into what the rate would be. So 8.5% and upwards is a better benchmark. Either way, any advice? =)
OSAP stopped giving me a loan this final year because I'm working in the summer and my brother is no longer a dependant child. I'll also be earning about $2-3k during the school year from grading papers and such. So that $25k is from previous osap, bursaries, this summer's earnings, and the school year's earnings + investments using osap $$ lol.

Way to screw your fellow student. And when you start paying taxes on your paycheque, don't ever complain about it being too high. YOU are the cause.

[born2be_lazy]

Way to screw your fellow student. And when you start paying taxes on your paycheque, don't ever complain about it being too high. YOU are the cause.

are you telling me I'm supposed to let the excess money from my osap loan sit in a 0% account? Just because I have a few grand in excess of my tuition costs from my osap+bursary doesn't really make me 'screwing' over fellow students. do you expect me to have an exact $0 account balance?

anyway. I'm still getting mixed answers as to what to do... to pay off in full or in monthly payments? =)

[Sylvestre]

are you telling me I'm supposed to let the excess money from my osap loan sit in a 0% account? Just because I have a few grand in excess of my tuition costs from my osap+bursary doesn't really make me 'screwing' over fellow students. do you expect me to have an exact $0 account balance?

anyway. I'm still getting mixed answers as to what to do... to pay off in full or in monthly payments? =)


So that $25k is from [...]

:confused:
so 25K is a "few grand"?
If you graduated school with 25K in savings, you weren't in any real need.

[caliente]

I'm also a little confused on how you managed to get so many OSAP loans since you are obligated to report ALL assets (including bonds, stocks, and all banking accounts, etc). When I applied with assets around $15 000 (mostly stocks), I did not receive any OSAP that year. I was told that OSAP expects you to liquidate some of your assets to pay for school.

However, I don't think he is screwing other students over since how much one student gets is not dependent on the status of other students at the school (usually).

[caliente]

Oops, forgot to chime in on the original topic.

OSAP gives you 6 months interest free after graduation, I believe. After that, the interest charged is quite high, but tax deductible. So it seems to be the amount of interest vs. the benefit of getting tax deductions. Are student LOCs tax deductible?

I've been told that it is better to pay off your OSAP loan with a student LOC (prime + 1). However, I haven't personally investigated all the possibilities yet.

[ghostryder]

the interest charged is quite high, but tax deductible.

False. It is not tax deductable. Student loan interest generates a Non-Refundable Tax Credit, not a deduction.


So it seems to be the amount of interest vs. the benefit of getting tax deductions. Are student LOCs tax deductible?


No, student LOC's are not tax deductable if you used the funds for your education.

If you used the funds to make investments that pay interest, income, or dividends then yes. But that's not why the lender gave you the LOC.

[Bullseye]

anyway. I'm still getting mixed answers as to what to do... to pay off in full or in monthly payments? =)

The ethical thing would be to pay it back immediately. Your interest-free period is being subsidized by taxpayers, who assume this money is being loaned to students who actually need it, not for investing and profiting from

[born2be_lazy]

:confused:
so 25K is a "few grand"?
If you graduated school with 25K in savings, you weren't in any real need.

In case you happened to miss the part where that $25k includes this summer's earnings and the upcoming school year's earnings.....

I'm making over $10k this summer and another $5k during the school year. I did report my assets so I didn't qualify for osap this year. I also had a grand or two of savings aside from OSAP. I haven't graduated YET pal.

[leungly]

[QUOTE=caliente;5338688]Oops, forgot to chime in on the original topic.

OSAP gives you 6 months interest free after graduation, I believe. After that, the interest charged is quite high, but tax deductible. So it seems to be the amount of interest vs. the benefit of getting tax deductions. Are student LOCs tax deductible?/QUOTE]

Nope INterest starts accruing May 1st. At least that was the case in 2005, but I'm fairly certain they have not changed it since.
http://osap.gov.on.ca/eng/not_secure/repay.htm

You have 6 months before you absolutely need to start paying back the loan but the interest starts accruing the moment to finish being a post-secondary student.

[Rosico]

pay it back for moral reasons. Or, run the numbers and donate your profit proceeds to a scholarship at your school. ;)

[born2be_lazy]

Well the interest on your student loan generates a tax credit so the effective rate is less than the posted rate.

7-(7 x (15.5 fed + 6.05 prov))= 5.4% effective rate. 6.05 is the prov rate for ON.

Readers in other provinces would adjust for their prov rate. For example the rate where I live is 11% so based on the same 7% my effective rate would be 5.14%.

So if you could get an investment that guaranteed more than 5.4% after tax then that investment would be better than paying off you loan.

If you have any other debt with a higher rate paying that off first would be better.

Also keep in mind your future purchases. If you plan on buying a car when you are done school it would make no sense to borrow at 7% to buy the car and pay off your SL. You'd be better off paying cash and keeping the lower effective rate SL.

So assuming that formula with 9%, the effective rate would be approx. 7%.

Judging from that, I could probably get a higher return and should pay back monthly rather than pay in full, righto?

Ryan

[netriones]

Hoping to get a higher return than osap and not paying osap off is equivilent to borrow money from line of credit at 8.75%~11.25%(before tax credit) to invest in stock market. Is it a wise action?:!:

[born2be_lazy]

lol but you get a tax credit for student loans right? so it's actually lower. o.O

[tigger03]

wait ... now I'm confused.

Is your OSAP interest tax deductible or not?? The financial person at school said it WAS tax deductible, yet someone on this forum said it isn't .... who's right??

[nobody1234]

wait ... now I'm confused.

Is your OSAP interest tax deductible or not?? The financial person at school said it WAS tax deductible, yet someone on this forum said it isn't .... who's right??

As mentioned previously, it generates a non refundable tax credit, not a deduction. For the difference:
http://thegallopingbeaver.blogspot.com/2006/05/tax-deduction-vs-tax-credit.html

[ghostryder]

wait ... now I'm confused.

Is your OSAP interest tax deductible or not?? The financial person at school said it WAS tax deductible, yet someone on this forum said it isn't .... who's right??

I am. :)

[jeeva86]

I'm confused about Non-Refundable tax credits. What about the tuition credits or something, aren't they refundable?

[zmike]

I have a question, I recently checked my OSAP app and noticed that I did NOT receive QEII, (I didn't even get the minimum $100!?!?!?).

I finished high school ranking 3rd (out of a class of 110) with a 93.5% avg.
I know a classmate who had only an 85% avg and he received $1450. I am very confused, could QEII scholarship of lesser amounts be issued later on? Why could I be receiving nothing for all my hard work?

Thanks

[gdc5]

^you must be smart so you should be able to figure it out, maybe you didnt check the box on the osap app

[CSK'sMom]

I have a question, I recently checked my OSAP app and noticed that I did NOT receive QEII, (I didn't even get the minimum $100!?!?!?).

I finished high school ranking 3rd (out of a class of 110) with a 93.5% avg.
I know a classmate who had only an 85% avg and he received $1450. I am very confused, could QEII scholarship of lesser amounts be issued later on? Why could I be receiving nothing for all my hard work?

Thanks

Did you apply before the deadline and check the box to apply for it? Oh, and there is a wonderful OSAP thread in this very forum that is much better suited to questions like this vs. this thread...

[lame23]

are you telling me I'm supposed to let the excess money from my osap loan sit in a 0% account? Just because I have a few grand in excess of my tuition costs from my osap+bursary doesn't really make me 'screwing' over fellow students. do you expect me to have an exact $0 account balance?

anyway. I'm still getting mixed answers as to what to do... to pay off in full or in monthly payments? =)
How can you pay your osap while your still in school? (e.g one time payment of $4,000 from a gift/lottery winnings). TIA

[peterpatch]

How can you pay your osap while your still in school? (e.g one time payment of $4,000 from a gift/lottery winnings). TIA

You should contact the OSAP people about paying it off. Although this could be dangerous. The may re-assess you and ask for even more money back.

The OSAP system works by providing financing to people who need it. They use a formula to determine the eligibility and amount of funding. If someone gets too much it does not affect other OSAP students, it does however affect the tax payers who finance the OSAP program. However defining "too much OSAP" is very subjective. Some people think that if you are not just scraping by every month then you have too much funding. On the other hand I know people who felt OSAP entitled them to a car and large screen TV. My opinion is that you should be able to live in a way that allows you to have a reasonable level of entertainment every week, eat healthy and live in a place that is healthy and a good studying environment. I also believe that medical Doctors should be completely forgiven any school loans they take out if they become full doctors and stay in Canada and practise for 5-7 years after finishing their academics.

[factum7000]

Oops, forgot to chime in on the original topic.

OSAP gives you 6 months interest free after graduation, I believe. After that, the interest charged is quite high, but tax deductible. So it seems to be the amount of interest vs. the benefit of getting tax deductions. Are student LOCs tax deductible?

I've been told that it is better to pay off your OSAP loan with a student LOC (prime + 1). However, I haven't personally investigated all the possibilities yet.

NO...OSAP interest begins the month after you've finished your last final exam.. e.g. if your last exam is on April 27th, interest begins on May 1st.

You are required to begin payments 6 months afterwards.

[factum7000]

wow this thread is 2 years old. I'm sure the OP has resolved his dilemma?