Personal Finance

Government Student Loan vs. Bank Line of Credit

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  • Jul 21st, 2005 6:02 am
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Jr. Member
Feb 7, 2005
125 posts
44 upvotes
Calgary

Government Student Loan vs. Bank Line of Credit

What do you think is "better" for paying for school? A government student loan or a line of credit from a bank?
21 replies
Newbie
Aug 2, 2001
42 posts
3 upvotes
Vancouver
Government loan. You don't have to pay anything until you graduate and start working (6mnth grace period I think as well).

Bank loans..you have to make interest payments on any outstanding balance.
Jr. Member
Feb 7, 2005
125 posts
44 upvotes
Calgary
supershocka wrote:Government loan. You don't have to pay anything until you graduate and start working (6mnth grace period I think as well).

Bank loans..you have to make interest payments on any outstanding balance.
For government loans, when do they start adding up interest?
Banned
Jan 11, 2004
19816 posts
572 upvotes
woovic wrote:For government loans, when do they start adding up interest?
right after you graduate..which is better than bank loans since for the 4years or so you are in school, you dont incur any interest for gov't loan
Member
Oct 2, 2003
362 posts
5 upvotes
Many people have been caught by this. Your interest starts accumulating on the day you graduate. The 6-month "grace period" is only "interest free" if you are going back to school. Otherwise, it is only the delay period until they start automatically sucking money out of your account.
Banned
Jan 11, 2004
19816 posts
572 upvotes
gSSEhh wrote:Many people have been caught by this. Your interest starts accumulating on the day you graduate. The 6-month "grace period" is only "interest free" if you are going back to school. Otherwise, it is only the delay period until they start automatically sucking money out of your account.
not day you graduate, day you finished your study period... since technically, you graduate during your convo a few months after your study period ends.
Member
User avatar
Apr 30, 2005
238 posts
10 upvotes
I used to work in this department.

Student loans start charging interest the day after you finish your last study period. (Usually April 30th). After 6 months, you will need to start making those monthly payments - usually in November of the same year.

Interest rates for student loans are Prime + 2.5%.
Student line of credits can vary; usually Prime + 1% but you are making payments while you are in school.

I personally have borrowed for my schooling with student loans. Some people after they graduate, consolidate their loans with a bank that offers them a lower interest rate. The trade-off? Interest paid on student loans can be written off on your tax return while other bank loans can not.


Some other programs/advantages associated with student loans:

- flexibility....you can revise the terms of your loan to accomodate your budget (ie. extend the term up to the max of 14 years to lower your monthly payment.)
- Government offers Interest Relief program so that if you are not working or have a low paying job, then they will pay for your interest FOR YOU for 6 months at a time...(you would need to re-apply every 6 months up to a max of 5 years)....This is great for unemployed grads. The bank would never give you ANY relief.


Hope that helps.
Deal Addict
User avatar
Aug 13, 2002
3307 posts
26 upvotes
The only problem with government loans is that they don't give you enough, and you have no recourse. Say you need $1000, they only give you $800, if you work to make up the remaining $200, they'll see you have more income and reduce your loan to $600.

So to the original question, government loan is definitely better (interest free while ur in school) if you can get enough or any, otherwise, you'll probably need a combination of both without someone else supporting you (eg parents). Better solution is to just make enough so you don't need either, which isn't possible for everyone I guess.
Jr. Member
Jun 27, 2005
113 posts
This used to be one of the bigger drawbacks of GVT student loans but in BC the Libs have severely increased the amount you can make while on student loans in the last couple of years. Don't know if other provinces have followed suit.
Nyte wrote:The only problem with government loans is that they don't give you enough, and you have no recourse. Say you need $1000, they only give you $800, if you work to make up the remaining $200, they'll see you have more income and reduce your loan to $600.

So to the original question, government loan is definitely better (interest free while ur in school) if you can get enough or any, otherwise, you'll probably need a combination of both without someone else supporting you (eg parents). Better solution is to just make enough so you don't need either, which isn't possible for everyone I guess.
Jr. Member
Feb 7, 2005
125 posts
44 upvotes
Calgary
trinity wrote:I used to work in this department.

Student loans start charging interest the day after you finish your last study period. (Usually April 30th). After 6 months, you will need to start making those monthly payments - usually in November of the same year.

Interest rates for student loans are Prime + 2.5%.
Student line of credits can vary; usually Prime + 1% but you are making payments while you are in school.


I personally have borrowed for my schooling with student loans. Some people after they graduate, consolidate their loans with a bank that offers them a lower interest rate. The trade-off? Interest paid on student loans can be written off on your tax return while other bank loans can not.


Some other programs/advantages associated with student loans:

- flexibility....you can revise the terms of your loan to accomodate your budget (ie. extend the term up to the max of 14 years to lower your monthly payment.)
- Government offers Interest Relief program so that if you are not working or have a low paying job, then they will pay for your interest FOR YOU for 6 months at a time...(you would need to re-apply every 6 months up to a max of 5 years)....This is great for unemployed grads. The bank would never give you ANY relief.


Hope that helps.
Since a student line of credit has a lower interest rate, is it a good idea to take out a student line of credit after you graduate to pay off your existing government student loan?
Banned
Mar 21, 2003
3085 posts
1 upvote
Nyte wrote:The only problem with government loans is that they don't give you enough, and you have no recourse. Say you need $1000, they only give you $800, if you work to make up the remaining $200, they'll see you have more income and reduce your loan to $600.
That's not true at all, I don't know anyone who has had their loans decreased from making small wages during school or while working during the summer to save up.

If you need $1000, and they give you $800, as long as you only make that $200 you are perfectly fine.. but if you made $400, then you might have some explaining to do.
Member
User avatar
Nov 28, 2002
408 posts
7 upvotes
woovic wrote:Since a student line of credit has a lower interest rate, is it a good idea to take out a student line of credit after you graduate to pay off your existing government student loan?
That depends, remember the gov't student loan interest is tax deductible, the bank student line of credit is not.
Member
Jan 10, 2005
247 posts
The other thing to remember,

Banks are good to deal with, Canada Student Loans are not.

I have been paying mine back for 1.5 years now 2 years since been out of school and the CSL department are the biggest group of whineos ever.

They will call you every other month to update records. I use automatic payment, some months they wont withdrawll on time then they call me and try to say that there wasnt enough funds in my account. They did this three times in a row untill I got so pissed that I wend down their office in Calgary, took a copy of my previous 8 moths of bank statements and said the following.

"As you can see, I keep a 2000 rolling balance in this account just in case of emergency, plus another 2500 in my Pres Choice account for extra emergencies etc. There is no way that a 147.56 payment would be rejected by my bank when I make 1762 every two weeks and you only withdrawl once a month and there has never been a balance less than 2275 since you started withdrawling."

Needless to say there was some explatives in my above statement cause I was getting worried that these sponsorship lackeys were ruining my credit rating. Now I never answer the phone with a fed govt office calls cause I never want to talk to them ever again. If they need to correspond with me I tell them to send it via the mail and I might call back.

Where as with the banks I have a 12K line of credit loand and a 18K car loand and they never bother me ever. Everythign was done over the phone ONCE. I love my bank "ATB" I have never gone into a bank in the last 5 years except to do 3 things.

1: Sign a car loan that I negotiated over the phone.
2: Sign the Line of Credit Loan.
3: Sign the RRSP loan.

Its something to keep in mind. For all the people that never pay it back - and they endlessly harass someone who has never missed a payment ever. Heck I took a year off to go to greece/italy/swi/turkey for 8 months and I was paying it back out of my savings never once missing a payment.

Sorry for the rant but I hate the CSL department. Hopefully by november I will have enough saved up to pay it off in full so I never have to talk to anyone from there ever again (12K is a little hard to save for, but I have put off buying a condo cause I hate these people so much).

MYK
Deal Addict
Apr 9, 2005
1068 posts
1 upvote
Vancouver, British C…
o the horror .......

as a student on student loan, can't wait for grad & be unemployed.........

anyone have more tips and advice on student loans ? :)
Member
User avatar
Apr 30, 2005
238 posts
10 upvotes
You can only get a student line of credit while you are full-time student. (Proof of enrollment is required each year.)

When you graduate, you would have to apply for a regular unsecured line of credit. Those rates can vary - Prime + 2-4% on average. Usually the bank will offer you a lower rate with higher credit limits. And your credit limit would depend on your credit bureau score.
woovic wrote:Since a student line of credit has a lower interest rate, is it a good idea to take out a student line of credit after you graduate to pay off your existing government student loan?
Deal Addict
Jun 12, 2005
2280 posts
20 upvotes
Ahh... banks are rejecting my student LOC, what is the best way to get approved?
Deal Addict
Mar 10, 2005
4988 posts
7 upvotes
i got a student loan and it was 6 months after I finished school. it was a 10yr loan. I could negotiate terms and payment if i wanted.

but BoM handled the loan for the gov't.
Member
User avatar
Jun 14, 2003
394 posts
7 upvotes
Azxster wrote:Ahh... banks are rejecting my student LOC, what is the best way to get approved?
I am an EE minon at uoft (going into 3rd) and i just got RBC student LOC at prime + 1% and I have basically no income and my parents didnt' have to co sign for me, plus they gave me a credit card despite I didn't even want it (going to cut it as soon as i get it)

what i did was basically hinting that i am a one bank kind of a guy and i would switch all my business to RBC IF they give me a LOC plus i might even switch my parent's mortagage as well.

Try and see if that works for you.

Banks are desperate for your business and i think REALLY want you to have anything under their bank
Sr. Member
Jul 18, 2005
793 posts
6 upvotes
Mississauga
I would highly recommend writing students loans the biggest check you can as soon as you get your first job out of school. There is no penalty for paying them off early. If you work a bunch of overtime one month toss another grand at your loan instead of buying a new TV, etc. Interest sucks.
JIM
Banned
Mar 21, 2003
3085 posts
1 upvote
J1M wrote:I would highly recommend writing students loans the biggest check you can as soon as you get your first job out of school. There is no penalty for paying them off early. If you work a bunch of overtime one month toss another grand at your loan instead of buying a new TV, etc. Interest sucks.
The interest may suck, but the interest is also tax deductible...

I would recommend paying as much as you can afford, but it makes no sense to decrease your quality of life just to put rush payment on something that doesn't require rush payment.

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