How to take the edge off 'scary' student debt
bootlegga @ Fri Jul 29, 2011 9:45 am
$1:
At the time, it was a choice between focusing on his university grade-point average and planning ahead to pay off his student debt – and James McDonald chose the former.
Now, the recent Memorial University graduate is finally starting to pay attention to the bills piling up and says he feels his student debt of $50,000 is almost “insurmountable.”
“I know that is silly and I will pay it off, but I feel like it will take years,” he said. Mr. McDonald recently moved to Toronto and started working as the president of the Canadian University Press and hopes to find work as a full-time journalist.
As costs rise, more and more students are relying on loans to help finance their higher education. The proportion of graduates in debt increased from 49 per cent to 57 per cent in the last decade, Statistics Canada found in 2010. It’s a trend that Bradley Roulston, a certified financial planner, finds disturbing.
“Student debt has become socially acceptable and a way of life,” he says. “When I graduated from university, maybe a third of people had student debt. Now, it’s the norm.”
Mr. Roulston works with high-school and university students and finds that for many of them, the concept of paying back debt only becomes a reality once they graduate.
“For example, in B.C. and Ontario, interest payments start accumulating the day students graduate, even though the first payment isn’t required until six months after graduation,” he said. “And it’s really during this consolidation period that I think it finally hits students that they not only have debt, but they now need to start paying it back.”
The problem is that many students have very limited exposure to financial planning, said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada.
“That’s a very scary thought,” he said. “It’s absolutely vital that parents sit down with their kids before they even start applying to universities [to talk] about how they are going to plan to pay for it.”
For some parents, that can mean monthly contributions to a Registered Education Savings Plan.
“The downside with an RESP is that the government is giving support to only those families that can make RESP payments in the first place,” Mr. Roulston said. “There is this division of classes, where people who have money can take advantage of the system, and those who don’t get further and further into debt.”
Many students who approach Mr. Roulston say they are unable to pay down debt because they can’t find employment, and he encourages them to consider alternatives.
“If they have challenges getting work, they can ask for interest relief,” he said. “If you have student loans from the government, don’t consolidate it with the bank, because you have a lot of advantages, such as tax benefits, if you keep it with the government.”
He also advises against declaring bankruptcy because that can have a long-term impact on a young adult’s credit rating and borrowing power.
Now, the recent Memorial University graduate is finally starting to pay attention to the bills piling up and says he feels his student debt of $50,000 is almost “insurmountable.”
“I know that is silly and I will pay it off, but I feel like it will take years,” he said. Mr. McDonald recently moved to Toronto and started working as the president of the Canadian University Press and hopes to find work as a full-time journalist.
As costs rise, more and more students are relying on loans to help finance their higher education. The proportion of graduates in debt increased from 49 per cent to 57 per cent in the last decade, Statistics Canada found in 2010. It’s a trend that Bradley Roulston, a certified financial planner, finds disturbing.
“Student debt has become socially acceptable and a way of life,” he says. “When I graduated from university, maybe a third of people had student debt. Now, it’s the norm.”
Mr. Roulston works with high-school and university students and finds that for many of them, the concept of paying back debt only becomes a reality once they graduate.
“For example, in B.C. and Ontario, interest payments start accumulating the day students graduate, even though the first payment isn’t required until six months after graduation,” he said. “And it’s really during this consolidation period that I think it finally hits students that they not only have debt, but they now need to start paying it back.”
The problem is that many students have very limited exposure to financial planning, said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada.
“That’s a very scary thought,” he said. “It’s absolutely vital that parents sit down with their kids before they even start applying to universities [to talk] about how they are going to plan to pay for it.”
For some parents, that can mean monthly contributions to a Registered Education Savings Plan.
“The downside with an RESP is that the government is giving support to only those families that can make RESP payments in the first place,” Mr. Roulston said. “There is this division of classes, where people who have money can take advantage of the system, and those who don’t get further and further into debt.”
Many students who approach Mr. Roulston say they are unable to pay down debt because they can’t find employment, and he encourages them to consider alternatives.
“If they have challenges getting work, they can ask for interest relief,” he said. “If you have student loans from the government, don’t consolidate it with the bank, because you have a lot of advantages, such as tax benefits, if you keep it with the government.”
He also advises against declaring bankruptcy because that can have a long-term impact on a young adult’s credit rating and borrowing power.
http://www.theglobeandmail.com/globe-in ... le2112211/
This is one of the items from the Liberal's slash and burn deficit reduction policy that never got additional funds once the deficit was under control and the economy picked up.
IMHO, that a real problem, because more people take on more debt, which may be great for the bottom lines of banks in this country, but impact the economy because students spend up to a decade paying off their loans and find it increasingly difficult to buy the major items (cars, homes, etc) that drive our economy.
BartSimpson @ Fri Jul 29, 2011 9:56 am
The whole notion that everyone needs a college degree is bunk. We need plumbers, mechanics, and etc. who just need trade school educations and professional apprenticeships.
Myself, I'd encourage kids to look at these options as opposed to ringing up $100k in student loans so you can have a Master's degree to keep you company in the unemployment line.
andyt @ Fri Jul 29, 2011 10:02 am
I agree. But, we don't want to create a situation where only wealthy kids go to college. Bright kids from all economic backgrounds that can contribute something by going to higher ed should be doing so, with not financial impediment. Make college a meritocracy, where the only thing that determines you getting in is your ability.
And, provide support for low income kids in k - 12 so that if they do have the academic talent, it's nutured - or whatever their talent is.
You won't have a true meritocracy in the US unless every kid is given the same chance at success - ie you'll never have a true meritocracy.
bootlegga @ Fri Jul 29, 2011 10:54 am
BartSimpson BartSimpson:
The whole notion that everyone needs a college degree is bunk. We need plumbers, mechanics, and etc. who just need trade school educations and professional apprenticeships.
Myself, I'd encourage kids to look at these options as opposed to ringing up $100k in student loans so you can have a Master's degree to keep you company in the unemployment line.
Myself, I'd encourage kids to look at these options as opposed to ringing up $100k in student loans so you can have a Master's degree to keep you company in the unemployment line.
That's your opinion, and while I agree that not everyone needs a university education, I think most people would benefit from some sort of education after high school.
The issue here is that costs have skyrocketed (at least in Canada) because the federal government massively cut back subsidies for post-secondary education as part of their deficit reduction. As such, people who finished their degrees in the 80s and early 90s paid as little as 10% of the cost of their education, while nowadays, people pay closer to 40% of the cost of a university education. That's a tremendous jump in less than 20 years - and it far outpaces inflation.
While life is unfair, that's not my beef with the funding issue.
Mine is that it seriously hinders the next generation from making those big ticket purchases that help drive our economy. If we turn the next generation into debtors with near crippling debt levels before they even graduate, how long will it be until they can afford more than just a crappy little apartment and a POS car? Or worse, it creates a generation who lives month to month on credit and is a paycheque or two away from bankruptcy and/or living on the streets
It took me almost a decade to pay off the debt from my Bachelor's degree and guess how many cars and houses I purchased in that timeframe? ZERO. Same with big screen TVs, smartphones, expensive trips, etc.
When I went back to get my Master's, I specifically chose a program that allowed me to work at the same time and pay for courses one at a time, instead of all at once. That allowed me to pay for everything with earnings and not have to take out a loan to finance my graduate degree.
Honestly, there were times after 9/11 when I wished I had been smart enough to go to trade school and get an apprenticeship (like an electrician). Tradespeople cleaned up in the past decade and a half in Alberta and it's not uncommon for many of them to earn six figure salaries in Edmonton. Some of them make so much that they can work for six-eight months and take the rest of the year off.
BTW, I doubt there are too many people in the unemployment lines with Masters degrees for very long. I don't know about the US, but less than 2% of Canadians get a Masters or PhD, so by getting one, you put yourself ahead of most of the population in terms of knowledge base and employability.
BartSimpson @ Fri Jul 29, 2011 11:28 am
bootlegga bootlegga:
I think most people would benefit from some sort of education after high school.
How about just a better high school education like what our parents and grandparents had?
Brenda @ Fri Jul 29, 2011 11:33 am
I was looking into going to back to school, but I simply cannot afford it. I will not be able to pay off my loans with 2 kids going to college within the next 8 years.
jeff744 @ Fri Jul 29, 2011 12:17 pm
I face about a 5% increase in my tuition every single year and I am in one of the lower increase groups.
Proculation @ Fri Jul 29, 2011 12:17 pm
bootlegga bootlegga:
The issue here is that costs have skyrocketed (at least in Canada) because the federal government massively cut back subsidies for post-secondary education as part of their deficit reduction.
Isn't education a provincial matter ?
CommanderSock @ Fri Jul 29, 2011 1:20 pm
Can we prove our parents got better education? I mean they were trained to make widgets in factories.
Those factories don't exist anymore. Much higher degree of knowledge is needed even for very basic factory work.
We want better high schools? Somebody has to fund them either way. It's either going to be the government or the students/parents, or both.
bootlegga @ Fri Jul 29, 2011 1:29 pm
Proculation Proculation:
bootlegga bootlegga:
The issue here is that costs have skyrocketed (at least in Canada) because the federal government massively cut back subsidies for post-secondary education as part of their deficit reduction.
Isn't education a provincial matter ?
Yes, but post-secondary institutions still receive funding from the federal government. Just like lots of other areas that fall under the provincial mandate (like health care).
jeff744 @ Fri Jul 29, 2011 2:29 pm
CommanderSock CommanderSock:
Can we prove our parents got better education? I mean they were trained to make widgets in factories.
Those factories don't exist anymore. Much higher degree of knowledge is needed even for very basic factory work.
We want better high schools? Somebody has to fund them either way. It's either going to be the government or the students/parents, or both.
Those factories don't exist anymore. Much higher degree of knowledge is needed even for very basic factory work.
We want better high schools? Somebody has to fund them either way. It's either going to be the government or the students/parents, or both.
Recent students don't have any money to fund them with, they are too busy trying to find what they got. Eventually the government will realize what is going on but not until university students leave missing a kidney and any other organ they can live without.
BartSimpson @ Fri Jul 29, 2011 3:02 pm
CommanderSock CommanderSock:
Can we prove our parents got better education?
Most of our parents are able to make change without a calculator. How many kids these days can do the same?
BartSimpson @ Fri Jul 29, 2011 3:04 pm
If you can't afford to go to a university, and you don't qualify for any scholarships, and you can't afford the loans then don't go.
Brenda @ Fri Jul 29, 2011 3:09 pm
BartSimpson BartSimpson:
If you can't afford to go to a university, and you don't qualify for any scholarships, and you can't afford the loans then don't go.
Economics 101
sandorski @ Fri Jul 29, 2011 3:25 pm
Beer.