Personal Finance

OSAP repayment strategy

  • Last Updated:
  • Oct 12th, 2017 7:24 pm
[OP]
Newbie
Oct 29, 2015
18 posts
4 upvotes

OSAP repayment strategy

Hi RFD,

I have just received a letter regarding paying my OSAP loans. I am current on a 12-month internship (possibility to extend an extra 4 months) and will be going back to finish my degree September 2018.
  • I have about $27k worth of loans to pay
  • My interest rate is 5.7%
  • my monthly payment is about $320
  • I take home about $3000 a month form my internship (another $1000 to $500 from serving)
My goal is to have OSAP paid off by the time I graduate.
What would be a good strategy to pay it off? I'm thinking of simply increasing my monthly payment to $500 for the duration of my internship
When I go back to school, I no longer have to make payments and a portion of the loans no longer incur interest. During this time, I plan to continue serving and saving enough to pay the rest of my loan lump sum at graduation.

Thanks guys!
7 replies
Member
Oct 27, 2014
360 posts
250 upvotes
Toronto, ON
why so eager to pay off low interest loans? Since OSAP interests are tax-deductible, assuming you will be paying 30% income tax, that's effectively a 4% interest rate. Might as well slow down the payments and invest your savings in a more aggressive index portfolio (80% equity and 20% bond).
[OP]
Newbie
Oct 29, 2015
18 posts
4 upvotes
muppetslayer wrote:
Oct 12th, 2017 10:55 am
why so eager to pay off low interest loans? Since OSAP interests are tax-deductible, assuming you will be paying 30% income tax, that's effectively a 4% interest rate. Might as well slow down the payments and invest your savings in a more aggressive index portfolio (80% equity and 20% bond).

5.7% is considered low interest? I've read that effectively paying your loans is a guaranteed 5.7% return.
Member
Oct 27, 2014
360 posts
250 upvotes
Toronto, ON
DecayHeat wrote:
Oct 12th, 2017 11:03 am
5.7% is considered low interest? I've read that effectively paying your loans is a guaranteed 5.7% return.
It's an effective 4% loan since OSAP interests are tax deductible, versus long term market return of about 7% with an aggressive index strategy (80% equity/20% bonds)
Member
User avatar
Mar 2, 2014
257 posts
69 upvotes
For me, rather than increasing monthly payment via their portal, I pay an extra bill through my bank account every month.
This allows me to not have to worry about asking them to change monthly installment again if things go south on my end. Oh and I contribute a fixed amount for index investing as well :)
Newbie
Jan 1, 2017
92 posts
39 upvotes
DecayHeat wrote:
Oct 12th, 2017 10:32 am
Hi RFD,

I have just received a letter regarding paying my OSAP loans. I am current on a 12-month internship (possibility to extend an extra 4 months) and will be going back to finish my degree September 2018.
  • I have about $27k worth of loans to pay
  • My interest rate is 5.7%
  • my monthly payment is about $320
  • I take home about $3000 a month form my internship (another $1000 to $500 from serving)
My goal is to have OSAP paid off by the time I graduate.
What would be a good strategy to pay it off? I'm thinking of simply increasing my monthly payment to $500 for the duration of my internship
When I go back to school, I no longer have to make payments and a portion of the loans no longer incur interest. During this time, I plan to continue serving and saving enough to pay the rest of my loan lump sum at graduation.

Thanks guys!
Do you have money saved up already for your last year of school? If not I recommend saving as much as you can for your last year of school because your next year OSAP will be impacted by your earnings now. You may not qualify for osap at all or get a reduced amount based on how much you earn now. I suggest looking into that.
Deal Expert
Mar 25, 2005
20876 posts
1872 upvotes
muppetslayer wrote:
Oct 12th, 2017 10:55 am
why so eager to pay off low interest loans? Since OSAP interests are tax-deductible, assuming you will be paying 30% income tax, that's effectively a 4% interest rate. Might as well slow down the payments and invest your savings in a more aggressive index portfolio (80% equity and 20% bond).
muppetslayer wrote:
Oct 12th, 2017 11:07 am
It's an effective 4% loan since OSAP interests are tax deductible, versus long term market return of about 7% with an aggressive index strategy (80% equity/20% bonds)
It's a tax credit, not a deduction. It's only worth 15%
Deal Addict
Apr 5, 2016
1542 posts
757 upvotes
Calgary/Vancouver
For student loans, I ride it out as long as I can. 5.67% isn't a very high interest rate anyways and as others have said, it's a tax credit. Also, make sure you apply for Repayment Assistance Plan. Based on your income, the government may pay a portion of your interest to drive down your monthly payment, driving cost down. Then just pay extra every month to match what you would have been paying.
Current Fido customer.
Ex Koodo customer. Beware of their tactics.

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