Student Loans: A costly experience

By Dorothy Wright

EDUCATION TODAY IS FAST BECOMING A

luxury that very few can afford. Even after you get your degree, the chances of getting a job in your field and making enough money to pay back your student loans quickly may be a lot to hope for. Yet the government, both federal and provincial, are still handing out thousands of student loans. Now the banks are getting into the act by targeting those students who don’t qualify for Canada Student Loans. The decision to take out a student loan should not be made lightly because the conse- quences, with respect to your budget and credit, could outweigh the benefits of your education.

Whether you end up with a Canada Student Loan or a bank student loan, the total amount the bank will allow you to borrow is $5,200 a year. For example, you could have a Canada Student Loan for $2, 000 and a bank student loan for up to $3,200.

The main difference in the loans is that the Canada Student Loan is interest-free until you finish school, while the bank student loan requires you to pay interest while you are still in school. Paying interest while you are in school on the bank student loan could cost you an extra $12, 000 to $13,000 more than the Canada Student Loan for the same amount of money.

The bank will grant a student a loan of up to atotal of $31,200 for a4 year undergraduate degree and a 2 year graduate degree for a total of 6 years of school. Interest payments must be made monthly. Over the 6 year period, the interest would amount to approximately $12,831 provided the interest rate doesn’t rise above the current rate 11.75%. Out of their $5,200 annual loan, the student would have to pay $3,666 in interest alone that sixth year. If the loan is re-paid as agreed and the interest rate is constant, the total amount repaid over 16 years, (6 years of school, 6 months of no principal payments, and 9 1/2 years of principal and interest payments) would be approximately $66,589-- of that, $35,389 is interest.

The student has now graduated and even

has ajob. For the next 9 1/2 years, there is $455 to pay each month on the $31,200 student loan. That $455 amonth payment will take a big bite out of any budget, no matter how much the graduate makes. Buying a house could be out of reach while a student loan is still under repayment because of how it affects net worth (the difference between what is owned and what is owed). One of the

requirements for a mortgage loan is a positive net worth. While having an education is definitely an asset, it doesn’t have a dollar value to offset the student loan liability. Thus a graduate has a nega- tive net worth. Mortgage loans may be made in these cases, but on an exceptional basis only. What happens to these student loans and the student if they don’t find a job? Ifthe student still can’t find work after the 6 month ‘‘payment free’’ period, he or she can apply for interest relief for 3 months at a time, for a total of 18 months. The

CUP Graphic/ Hans Beckers/ The Uniter

government pays the interest on the Canada Student Loan while the student is on interest relief.

At the end of that period if the student still isn't working, they are nonetheless expected to make payments on their loan. After 3 payments have lapsed, the bank charges the student loan back to the government and then the loan is sent to a collection agency. Because these collection agen-

foes

cies are paid on a commission basis, they harass the student for payments. With the past due interest added on, a $17,000 student loan is now $19,500.

With payments of $200 a month, $170 goes to current interest and the balance is applied against the past due interest. For about 8 years, nothing gets put on the principal. The student ends up paying on the loan for the next 22 years. After 22 years, if the payments were paid on time at $200 a month, $39,925 will have been paid in interest alone.

If the student has managed to acquire prop-

erty, the government can demand payment in ful the defaulted loan and take a judgement againg property. The judgement could force sale of asset to pay the debt, with all legal cost incu added to the debt.

Now suppose the student with the defay student loan has a job and is expecting a heal income tax refund. He or she will be disappoin because that income tax refund will be applie the defaulted loan.

Suppose this same now-working stud would like to buy a car or a house. Because: credit investigation done by the financial institu shows a defaulted student loan, they are unab; lend this person any money. Bankruptcy is option, but it would result in loss of any assets well as loss of liability for debts. A year or so a being discharged from bankruptcy, the student co start to rebuild his or her credit. The debt, howe has not disappeared. It increases the national ( and is passed back to the taxpayers in increa taxes. There is no escaping the consequences

Co-op education, fee-payer programs, | employment education programs, continuing ¢ cation programs through employers, or on-the: training could be some alternatives to school without debt. If you decide that you are going to! a student loan to further your education, consid carefully. Weigh the costs and consequences agai the benefits and your ability and commitmen repay the loan in the future. Both the governm and the banks have faith that you will be abl successfully complete your studies and repay loan. Certainly, schooling by student loan \ either be the most practical and rewarding lesso economics the student will ever have, or a negal learning experience that haunts a student for rest of his or her life. In any case, the student sho certainly be aware of how costly student loans: be.

Your student representatives on the Presidential search committee, Paula MacFadyen and Patricia Embleton

Please respond in writing to the co-chairs Philip Smith and/or Margaret Munro

Since September 27th candidates to be the next president of UPEI have each been spending four days on campus. The four candidates for president are Dr. Elizabeth Epperly, Associate Professor of English at UPEI; Dr. Tim Easley, Principal of Frost Campus, Sir Sanford Fleming College; Dr. Roger Barnsley, Vice-Presdent Academic at St. Thomas University; and Dr. Colin Dodds, Vice-President Academic and Research at St. Mary's University. Dr. Colin Dodds is the final candidate to come on campus and students will, again have the opportunity to meet with the candidate at a Student Forum at the Barn on Thurs., Oct. 27 at 11:00am. All students are encouraged to attend. We welcome and thank you in advance for any comments that you might have on the presidential candidates. Responses must be received no later than Tuesday, November Ist.

smithp@upei.ca| munroe@upei.ca

Box 25, University of Prince Edward Island, 550 University ave., Ch'town, PEI, C1A 4P3

ctober 25, 1994