You will never forget your university years. These are not the best years of your life—at least, we hope not. Nope, these are just the years that you will be paying for during the best years of your life. It’s scary but true: someday soon, the government will stop putting cash in your pocket, and start siphoning off your paycheque. So how do student loans work?
Your “principal” is the dollar amount that you have borrowed. You must pay that back, but you’ll also have to pay back interest—that’s the price of borrowed money. The total amount owed depends on the size of your principal, the interest rate, and how much you dole out each month. If you have a bank loan, that’s about all we can tell you. Say a brief prayer, and give them a call.
OSAP loans are more clear-cut. You can start paying back your loans as soon as you graduate, and it’s worth trying, as interest starts to build immediately. In most cases, payments must start by your “consolidation date,” six months after you finish university, or stop being a full-time student. (Watch out: if you drop from full-time to parttime, you will likely have to start loan payments.) On your consolidation date, you can either pay the interest that has accrued over the last six months, or add the amount to your principal.
An interest rate is a fixed amount above the economy’s best (“prime”) interest, and it will change. You can fix your interest rate if you are willing to pay the current prime rate plus 5 per cent. Without clairvoyance, The Varsity can’t tell you if this is a good deal, and neither can most economists. If you have trouble making payments, you may qualify for interest relief or debt reduction. Both quire a lot of red tape, but might be worth your while.
How much will you actually pay? Average student debt in Ontario is $25,000.OSAP’s repayment calculator (which you can try yourself on their website) suggests $327 per month for 9.5 years. (That’s a total of $37,278.)
Unfortunately, minimum monthly payments also depend on income. If you get a high-paying job, your OSAP payments may go up—the increase could even cancel out your raise. But in the long run, at a higher monthly payment, you at least escape some interest. Your grandchildren will thank you.
