Avoiding The Student Debt Trap
Industry Insight Tom Hamza, President of the Investor Education Fund, lends his advice and tips for individuals thinking about going to school and furthering their education.
The financial reality facing many Canadian post-secondary students is deeply worrying. Many young people leave school shackled to heavy debt loads that grow exponentially worse with time and compound growth. You may know someone who is in this situation. In fact, that someone might even be you. But it doesn’t have to be this way.The right approach can help defuse a “debt bomb” before it explodes on graduation causing lasting harm.
A higher education is one of the biggest expenses you’ll ever face. It’s also one of your best investments because it can build a path to the life you want. The reality is that some education expenses can’t be covered while you’re in school. Advance planning and smart financial management can help you move from feeling pressured about where the money will come from to having control and confidence.
"A higher education is one of the biggest expenses you’ll ever face. It’s also one of your best investments because it can build a path to the life you want."
Here are three core strategies I recommend every student use to handle the costs of university, college or apprenticeship:
1. Prep early and manage properly for expenses heading your way
Financially preparing for post-secondary education is key and requires discipline. It’s not easy to stick to a plan, but it is important if you want to avoid a debt hangover. Sooner is always better, but it’s never too late to ready yourself for coming expenses. Get a part-time job and save as much as you can. Open and contribute consistently to a Registered Education Savings Plan (RESP); if you’re eligible, get the Canada Education Savings Grant (CESG).
2. Use student-focused financial support wisely
Consider all avenues of revenue for your school or training. Apply for scholarships and bursaries – and remember that awards can be available for both academic and extracurricular achievement. Make sparing use of Ontario Student Assistance Program (OSAP) bursaries and loans; you probably don’t need the maximum amount they’ll give you, so don’t request it. Check out student-specific chequing/savings accounts; sign up if there’s a clear money management advantage. Ideally, self-finance (through part-time work) as much as is realistic. Have a disciplined approach to “fun” expenses, and focus on school. Avoid credit cards, lines of credit and commercial loans: they can cause pain later.
"Financially preparing for post-secondary education is key and requires discipline. It’s not easy to stick to a plan, but it is important if you want to avoid a debt hangover."
3. Gain financial literacy. Apply it. Live by it.
Understanding your financial options and reality will give you the upper hand when you take on major life responsibilities with a big price tag. Use the budgeting tools we offer online: they can make post-secondary expenses visible. Develop a detailed budget with realistic numbers and you’ll get a realistic picture. You can then launch your debt repayment plan, one that is automatic. This will allow you to enjoy the perks of operating on autopilot: less stress and the knowledge that you’re getting to your destination.
Our research highlights barriers to financial literacy and competency. It adds to what we know from media reports, Statistics Canada data and advocacy organizations raising the alarm about student debt levels. From them, we know the challenges that students are facing, but I also see some promising signs of change.
We know students want practical skills to keep their financial lives on track and that they want these lessons taught in high school. It is encouraging to see it starting to happen now in Ontario with our support and resources. But you need to use them to benefit from them.
If you’re the parent or teacher of a student entering or continuing in post-secondary education —or if you are that student — explore GetSmarterAboutMoney.ca today.
What have you got to lose? Perhaps a long-term student debt.