How Will Changes To OSAP Affect Student Loan Users?

On September 1, 2015, the Ministry of Training, Colleges and Universities announced changes to how loans would be handed out under the Ontario Student Assistance Program (OSAP). These changes were designed to make its program “easier to use, more flexible, and more transparent”.

But will the provincial changes to student funding help or hinder students financially when it comes taking on debt to finance their education?

In a news release, the Ministry laid out several changes including:

  • the option to decline a full loan,
  • the ability to take out the student loan in smaller amounts,
  • not having to report a vehicle as an asset (before, car ownership was subtracted from the loan amount),
  • exempting the first $3000 in assets and
  • increasing the student loan limit to keep up with inflation and rising student costs.

Although these changes offer flexibility for students using loans to pay for tuition, books and necessities, the reality is that these changes may mean that more people will qualify for larger loans, potentially leading to more student debt after graduation.

The option to decline a full loan or to take the loan out through smaller withdrawals does not help those in need. For those who can afford their tuition on their own, it may or may not impact the amount they choose to borrow.  Like any other consumer who has a high credit limit, the temptation is to use the maximum credit allowed. The added risk with student loans is that interest on Ontario student loans is not applied until graduation. Given that, there is a potential disincentive for students to opt out of withdrawing the full amount. If you find yourself offered a student loan, we strongly recommend you build a budget while in school, manage your money carefully and reduce the amount you withdraw until you absolutely need it.

Options like exempting assets from the calculation of the loan amount that students are eligible for will be advantageous for those in need. However, by providing additional funding to those same students, this places them at risk that they will not be able to repay what may end up being even higher debts after graduation.

Borrowing While in School

In order to ensure that you graduation with as small a debt as possible, here are some healthy financial tips:

  • Prepare a budget each year for tuition, books, supplies, living costs and even entertainment, and project how much you think you may need to borrow. Keep track of your spending and if you are offside from your initial budget, figure out why and take corrective action as soon as you can.
  • Be efficient with your tuition. Choose your credits wisely and don’t drop courses mid-term while you are paying for a full load, unless it’s absolutely necessary. Having to pay again for missing credits can prove costly.
  • Avoid racking up credit card debt while you are in school. Unlike your student loans, interest accumulates immediately upon borrowing, and fast.
  • If you make extra money while in school, consider making early payments against your student loans. It will reduce the amount of debt that will begin to bear interest after graduation.
  • If you earn income, take full advantage of all tuition and school expense deductions on your tax return and consider putting any refund immediately towards reducing your debt even further.

Repayment After Graduation

Regardless of how much you borrow to go to school, you will need a plan to repay that debt. Here are some tips that can help make student debt repayment easier:

  • Begin right away. While there is still a short interest free period immediately after graduation, if you are earning money, start making student loan payments as soon as you have some extra cash. Things like fancy new clothes, cars and electronics can wait. Remember, paying down your debt faster saves you money, which means you will eventually be able to afford more of what you want later.
  • If you are working, consider using pre-authorized payments as a way to automate your student debt payments. Paying more often (weekly or twice weekly) will again lower your eventual interest costs.
  • Take advantage of any tax deductions for student loan interest on eligible government loans.

If you default on your OSAP payments, the new Ontario Student Loan Rehabilitation Program, launched in January 2015, makes it possible to get back on track by making six monthly rehabilitation payments (at amounts set by the government). Once those payments have been made, you’re back onto your regular payment schedule. However, if you continue to default, your account is sent to collections and many don’t realize that OSAP uses external collection agencies to collect on your debt; leading to regular phone calls and the risk of a wage garnishment.

If your debt is too large, your income is too low or you have additional debts that make it difficult to keep up, you should consider other alternatives. If you’ve ceased to be a student for more than seven years, a consumer proposal or bankruptcy may be ways to eliminate your student loan debt, as well as any other debts that might be causing you stress. Even if you finished school less than seven years ago, a consumer proposal or bankruptcy will allow you to eliminate your other debts so that you can focus on dealing with your student loans.

If you’re struggling to repay your student loan debts, review your options with a licensed bankruptcy trustee and find out whether a consumer proposal or bankruptcy will help you to get out of debt.

Published on Thursday, September 10th, 2015