Students stressing over finances
I recently read a press release by BMO Bank of Montreal which showed that most post secondary students are more stressed out about their finances than their academics, and many believe they will graduate more than $20,000 in debt.
That sounds about right, doesn’t it? With many students managing their finances for the first time, it should come as no surprise that anxiety and stress over finances will come into play.
However, past statistics show a much financial bleaker picture for students. According to research from the Federal government, the total cost for post-secondary education – including tuition, school supplies, housing and other expenses – will amount to nearly $60,000 for a four-year program.
Will your degree be worth it after you calculate interest?
The Canadian Federation of Students indicates that the average student will graduate almost $27,000 in debt, and the Canada Student Loan Program shows that most borrowers will take nearly 10 years to pay off their loans.
A $27,000 loan with a 7.5% interest rate over 120 months (10 years) will mean that you will end up paying a total of $20,425.88 in interest over the life of the loan – making the total amount of the loan $47,425.88. Yikes.
Can you afford to pay back your loan?
If the average student graduates with $27,000 in student loans, that means every month they will have to deal with a payment of $395.22 (assuming 7.5% over 120 months).
Approximately 44% of those students with debt believe they will be to pay off their loans within 5 years of graduating. Eliminating $27,000 in just 5 years will cut the total interest paid over the life of the loan down to just $9,446.66 (a savings of $10,979.22), but as a result, the monthly payments will increase to $607.44. That’s a sizable chunk out of anybody’s budget, let alone a new graduate.
People end up taking out tens of thousands of dollars in student loans without thinking about whether they can pay it back. But figuring out how much you will need to pay each month isn’t hard. There are plenty of online calculators to help you out. My favourite is the CanLearn Loan Repayment Estimator.
If you have to take out so much debt in order to get the education you want at the school you want, it will likely affect your life for years after you graduate. That’s why it’s crucial to look at your student loan debt in relation to your earning potential immediately as a new graduate, and into the future. With your potential income level, will you be able to afford to pay back your loans, pay your rent, and live the life you want for yourself?
It’s a lot to think about, but starting to figure out your financial future now, might help save you a lot of stress – and money – in the future.
Author: Krystal Yee
I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.