Paying For School With A Student Line of Credit: What You Need To Know


With tuition costs rising, students look to various funding sources including scholarships, bursaries, paid employment, government student loans, and student-run credit unions.  In addition to (or instead of) these funding options, students can consider a student line of credit.

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What is a student line of credit?

As the University of Alberta’s Student Financial Aid Information Centre explains, a student line of credit is a personal loan from a bank that helps students pay for their post-secondary education.

While students are in school, they can borrow money from the line of credit to cover their expenses, but usually pay monthly interest on the balance.

While students are in school, they can borrow money from the line of credit to cover their expenses, but usually pay monthly interest on the balance.

Once students graduate, they are required to make payments that include interest as well as part of the principal.  Sometimes students are allowed a grace period before making these payments.

How do you get a student line of credit?

Usually both full-time and part-time students are eligible for student lines of credit.  Although most banks give these loans to Canadians studying at Canadian institutions, they are sometimes available for students who are studying abroad.  While most banks require that undergraduates have a co-signer for their line of credit, this is not usually required for graduate students.

Get some advice from your school’s financial aid office and check the interest rates and eligibility requirements at a few banks before making your decision.  For a general overview of what student lines of credit banks offer, check here.

Here are a few institutions that offer student lines of credit:

Pros

You do not have to have financial need to get a student line of credit, which is helpful if your income or your parents’ income disqualifies you from government student loans.  In fact, as York University’s Financial Services reminds students, the amount of a student line of credit will be less if you have existing debt.

Student lines of credit can be combined with other funding sources. If you receive scholarships or make more money at a job than you first estimated, you are often required to return some of your government loan, whereas this is not true with a student line of credit.

The interest rate on student lines of credit tends to be prime + 1%, whereas interest rates on government students loans for part-time students are around prime + 2.5%.  You can also consolidate your debts and pay the interest on your line of credit, rather than on your credit card (which will be much higher).

For part-time students, student lines of credit will usually offer a larger loan.  Student lines of credit tend to range from $5000 to $8000, while government student loans for part-time students tend to be capped at around $4000.

Cons

While student lines of credit can offer larger loans than most government loans, this can be a problem if you have trouble with overspending.

You are required to pay interest while you are still in school, which only part-time (not full-time) students have to do with government student loans.  Also, interest rates can be variable, meaning that they can increase on your line of credit.

You’re not automatically considered for bursaries and other types of aid like you are through government student loans.  This might disqualify you from some bursaries that are only awarded through things like the Ontario Student Assistance Program (OSAP).  (However, you can still apply for private bursaries and awards.)

You do not usually get repayment assistance (e.g., interest relief) like you would with a government student loan.  However, sometimes the bank allows you a grace period after you graduate.

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