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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.

10 years.

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.

An open letter to high school students

Dear high school students,

Congrats on graduating! :) Be proud of yourself and all that you have accomplished so far. It must feel good to be done with school, right? After all those final exams, essays, and assignments, you’re now enjoying the freedom of summer. But for those of you moving onto post-secondary school, there’s a lot to think about. Your parents have probably tried to talk to you about “your future,” but since it’s hard to listen to parents sometimes, maybe this letter from me might help instead.

Since I was the older sister, and one of the oldest cousins in my family, I didn’t have many people to get advice from. I made a lot of mistakes over the years, and I had to learn the hard way. But now that I’m closing in on 30 (or the first anniversary of my 29th birthday), hopefully I can offer you the words of wisdom I wish I had been given when I was your age.

Start saving

We all know that we should be putting some of the money we earn – whether it’s through a part-time job or gifted money – into a savings account. But it’s not just something adults do – it’s something we all need to be doing as soon as we start to buy things on our own.

You don’t need to make big bucks to open up a savings account – just start small. If you only think you can save $10 from each pay cheque, that’s okay. Putting that money into the bank is the smartest thing you can do for yourself. While it might not seem like much, you’re developing the habit of saving money, and that’s what’s really important.

Think ahead in life – past university

What will you do with your degree? How will you earn a living and pay back your student loans?

So many of my friends went to University for degrees in subjects that they were interested in – not degrees that they could cultivate into work after they graduated. It’s great to be passionate about what you’re studying, but you have to be realistic. Have a plan of attack.

Whatever it is you’re majoring in – understand what kind of jobs you can get from those degrees, and make sure it’s what you want to be doing when you graduate. If you’re a communication major, what are you going to do with that degree? Sure, it’s a fun topic to learn about every day, but how will you make money with that degree? What kind of job can you get, and will you be able to make the sort of money you will need to pay back your loans, and live the life you want for yourself?

I know it’s hard to think about right now, but you really need to be smart about an education that will likely put you tens of thousands of dollars into debt. Remember – education is only an investment if you can develop a career out of it.

Understand how student loans work

If you are applying for student loans, once you are approved, you might notice that the value of your loans will usually far exceed the cost of your tuition. Free money, right!? Wrong. Student loans are not free money. You will eventually have to pay it back (and yes, you will be charged interest on the loan), so be smart with how you spend that leftover money. I blew through my student loan money every semester, ended up having to take out a line of credit, maxed out my credit card, and then had to fix the mess I had created once I graduated. Don’t make the same mistakes as me.

Be careful with credit cards

Those free t-shirts and frisbees that credit card companies try to offer students sure are tempting, aren’t they? I fell for one when I was a student. I received a free t-shirt right away, and a few months later, I received a maxed out credit card bill in the mail. That card sat maxed out for years. YEARS. So that free t-shirt ended up being totally worth it, right?

A credit card can help you start to build a credit history – which you will need for many things later on in life. But it will only be a benefit if you use your credit card responsibly. Being reckless and keeping a balance on your card, missing payments, and getting into consumer debt will only make your life more difficult and stressful. Make a budget, and don’t buy things that you cannot afford to pay off immediately.

Work while you go to school

Having a part-time job while you go to school is a smart idea for most students. Not only will you have to take out less student loans, but you could potentially graduate with little to no student debt at all. If you’re worried about a part-time job being too hard while taking full-time classes, there is no law that says your post-secondary education must take 4 years. If taking a little longer means you won’t have to borrow any money, then do it.

The extra year or two it might take to finish your degree will be worth it when you graduate debt-free, and your peers are saddled with student loan debt for the next decade. Nothing feels better than landing your first “real world” job, and knowing all of that money belongs to you – and not the government.

Consider community colleges

Try not to dismiss community colleges. A lot of them offer great hands-on programs not offered at universities. After going to a university for 2 years, I ended up going to a community college instead. The program at college provided me with a much more hands-on education. Instead of sitting in a lecture hall, I gained real-world experience working and learning beside industry professionals, and I truly believe my community college education is what sets me apart from other people in my field.

Plus, not only is a community college much, much cheaper than a university, but many of the courses will transfer into a university degree program. Some colleges work in partnership with local universities, where you can do your first 2 years before transferring to do your last 2 years at the university.

I wish you the best of luck in your studies come September, or whenever you decide to go to post-secondary school. Study hard, don’t take anything for granted, and have fun. :)

Sincerely,

K.

P.S. yes, that really is a picture of me from my high school graduation celebration!

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What advice do you have for today’s high school students?

 

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