My student loans are my biggest debt thus far – $40,758 by April, 2014 for my 4-year Bachelor in Nursing. I’ve worked to pay this debt off for the last 22 months and have managed to pay this down to $31,745 and one lender left (not bad, still a ways to go!). Now, I aim to eliminate my loans completely by September, 2018.
Student loans have garnered more attention lately with increasing tuition and university costs and more students being forced to have to borrow loans to pay for school. A 2015 study by TD Economics found that a student, living at home, who started post-secondary in 2011 could accrue up to $55,000 in student loans by the time they complete their degree. That number jumps to $84,000 if the student lives away from home. Do you understand how much money that is? And how long it would take to pay it off? The answer is an average of 14 years via a 2012 survey by Rate Supermarket!
Looking at those numbers, my $41k isn’t all that terrible. The lender did give me 9.25 years to pay off the loan (with me paying them an extra $8,314 in interest). I learned some hard lessons from borrowing student loans and then being faced with the reality of repaying it all back.
So now, before YOU borrow student loans, I want to help you! I’ll share with you my biggest regrets about borrowing student loans in hopes that you’d be smarter about your own loans than I was. The goal is to reduce the amount you need to borrow – essentially, have less debt by the time you graduate.
What I would have done differently with my Student Loans
1. Borrowed only how much I really needed
I borrowed as much as I was qualified to borrow only because it was easy to get student loans. I maxed out these loans. In hindsight, I didn’t need to borrow $41k; it was nice to have, just in case of emergencies. It made me feel good knowing I had that amount in my bank account, even though it was never my own money.
What’s worse was that I received plenty of scholarships and grants that covered a huge portion of my tuition over the 4 years AND I was living at home rent-free AND I was working part-time. I could’ve gotten away with only $20k (maybe even $15k) student loans over university!
- Find out approximately how much your tuition and supplies are going to cost you. Be as realistic as you can and don’t over-exaggerate this amount.
- Figure out how much income you have (if you’re working part-time, if you’re expecting income from an RESP or via scholarships or grants, gift from parents/relatives, etc.) and borrow only how much you need to cover your shortfall.
- You can borrow a little extra if you’re unsure about the numbers but if you borrowed too much, put the excess in a high-interest savings account for next semester (or repayment). Don’t be tempted to spend that money on something else – it’s not YOUR money!
2. Dialed down my lifestyle
It was nice to have a brand new laptop every two years, bought lunch most days and several coffees from the university food court throughout the day, and paid for parking most days. And then during spring break, maybe a trip to somewhere tropical because I deserved the ‘getaway’ for all the hard work and studying I did.
I actually did these things and in hindsight, I lived an elevated lifestyle than one I could truly afford. In my mind, the money was in my bank account so my lifestyle blew up according to how much money was in the bank… big no, no! It was NOT my money!
The Fix: Live frugally and save where you can as much as you can. If it’s an option, live with you parents or have roommates, go to the local university if they offer your program (versus moving somewhere else and paying more for the same program), take the bus to school, pack a lunch everyday. Don’t live an extravagant life with money that isn’t yours.
If at all possible, use the student loans only for school-related stuff and work a part-time position for everyday, living expenses. Saying this, don’t buy a brand new laptop or the newest textbooks every semester… find ways you can cut down on costs!
3. Made a plan for the money I borrowed
Simply put, I didn’t have a budget so besides my tuition and school supplies, I didn’t really know where the rest of my student loans were going. I mean, I had an idea, but I couldn’t tell you how much was spent on what expense. It was the same thing with my income from my part-time position. It just went in my bank account and went out just as quickly.
Since I borrowed more than I needed, I had a lump sum just sitting in my account with no interest growth. I wish I had invested this in GICs or bonds (I wouldn’t gamble too much with money that isn’t mine) then I at least would have some growth from the loan. It would’ve locked that money in too so I wouldn’t be able to touch it for pleasure spending. Alternatively, I could’ve saved that money and prevented having to borrow more loans for the following semester. However, I didn’t do either and I paid dearly for it.
The Fix: Create a budget! It’s not that complicated to start with – list your monthly expenses and bills, designate a portion for savings and then divvy up how much money you think you need for spending. If your expenses are more than your expected income, cut down the expenses! Adjust accordingly every month and always work on cutting costs where you can.
If you borrowed more than you needed, at least keep it in a high-interest savings account (or secure investments like GICs and bonds) so it’s growing somewhat. I wouldn’t recommend putting them into stocks – you’re taking a risk with money that’s not yours and the typical 4-year timeline for a degree isn’t a very long window to mitigate risks in the stock market.
I made the mistake of putting in $5k of my student loan money in a Ponzi scheme and lost all of it… big ouch, but lesson learned! Don’t be like me!
4. Took my student loans more seriously
I bought into this complacent mindset of, “Worry about it later”, “It’s student loan, it’s a low-interest debt and you’ll take care of it in no time when you get a job” (yes because 14 years is “no time” at all) and “You have lots of time to deal with it when you’re done”.
Because of this mindset, I thought it would be okay to borrow as much as I was approved for and I didn’t worry about how much this debt would grow in just 4 years. I didn’t even do anything to reduce the amount I borrowed while I was in school. I actually considered my part-time job income as a supplement to my “student loan income” instead of a replacement.
The Fix: Don’t fall into this trap! Student loans are not “free money” and again, it’s not YOUR money. Borrow only what you need and keep your loans as low as you can make it. If you can, replace “student loan income” with a part-time job income.
5. Figured out the long-term effects of carrying this loan
This follows along with Point #4. I didn’t consider how much my student loan would grow in such a short time. I also didn’t take the time to know how much payments and interest accrued would add up to and the length of time it would take to pay it all back.
Something that didn’t even cross my mind back when I was withdrawing student loans in university were the opportunities young adults pass over as a result of student loan debt. According to the National Household Survey of 2011, 42% of young adults were still living at home (an increase of over 15% since 1981) and the primary reasons given were: poor employment opportunities, high cost of living and housing expenses and student loan debt. So after all those years of post-secondary education, you may still not be making enough money or be in a position to purchase your first home or start a family… bummer huh?
The Fix: Take your damn student loans seriously! Even if they are low-interest debt, they are still debt that you need to repay and will carry over that average of 14 years after you’ve graduated.
Do you really want to be raising your family of 5 in your parent’s (or your spouse’s parent’s) basement? Probably not…
6. Looked into other alternatives available to me
I went to university right after high school and naturally thought that borrowing student loans was part of the process. I applied for several scholarships and grants, and I was lucky enough to receive some of them. And I decided to work part-time while going to school and full-time in the spring and summers for some extra cash.
Looking back, I may have taken a different route to get to where I am today – a route equating to less student loans borrowed. Some of these include:
- Taking some time between high school and university to work and save up some money for post-secondary
- Applied for more scholarships and grants
- Used my job income as replacement for student loans (instead of supplement)
- Invested my excess student loans in secure investments (GICs and bonds or even in high-interest savings account)
- Taken the LPN (licensed practical nurse) route which is 2 years, worked as a LPN for higher pay than my part-time job in university and then upgraded to take my RN license (Registered Nurse)
This isn’t to say that I took the “wrong” path. What I’m saying is that I didn’t explore more of other alternatives that were available to me.
The Fix: Are you looking at your alternatives to borrowing student loans? Maybe you can work part-time to pay for part of your education or maybe you can work a full-year before going into post-secondary. You may qualify for grants and scholarships, just start looking for those opportunities. Is there a different path towards achieving that degree you wanted? Exhaust your options and alternatives before going for those student loans… I wish I did 🙂
- The Impact of Student Debt 2015 (PDF) retrieved from Canadian Federation of Students
- Can Canadians Afford the Future retrieved from Rate Supermarket
Your turn! Do you find this post helpful and will it change how you might borrow student loans?
Or, if you’ve ever borrowed student loans before, do you have any advice for our peeps looking to borrow loans for school?