Student Loans in Canada

As my first blog, I think it would be only right to post about one of the things I am most passionate about. STUDENT LOANS!

I am 26 years old and have been out of school and working for about 2 years. I've been very fortunate to land a great job that pays better than most available to those with my age and experience, but I still find my student loans to be very burdensome. At $600/month, it will take me another 6 years to pay off it all off. If I did not have such a great job, I cant fathom how I would get by. A person making $30,000 a year brings home about 2K a month. $600/month is 30% of that take home income. $1400 a month doesnt go very far in Toronto (where I am) considering rent is typically 700-900 for a 1 bedroom.

The student loan system is designed (apparently) to help students coming from low income households get post-secondary educations and build a better life. Now that I have been in repayment a while, I realize that this really isnt the case. In this first blog, lets touch on my biggest point of contention, interest rates. In future blogs I will adress problems with 1)The grace period 2)The beauracracy of Canada's student loans.

Im currently paying prime plus 2.5%. With today's prime rate at 6% Im paying 8.5% interest. This is outrageous. Consider that my credit card rate is 6.99%. If this is a government program designed to help the poor, why am I gouged with interest rates as soon as I graduate? In the US, I just read that a new graduate had consolidated thier loan at 4.25%. The prime rate in the US is 2% higher than in Canada! Think about it, Canadians pay prime + 2.5%, Americans pay prime -4%. But wait...it gets worse. That prime -4% interest rate (4.25%) that the American is paying is fixed! That person doesnt have to worry about interest rates going up. The rate im paying is variable. I do have the option of locking in my rate, but at prime +5%! 11% interst. Did I just get out of school, or out of prison? Lets look at the impact this would have on my monthly cashflow. If I were paying 4.25% instead of 8.5% on my $37,000 in loans (yes its ugly). I would pay $1,572.50 less in interest each year. I would have an extra $131.04 in my pocket each month, just due to a more equitable interest rate. What if I wanted an apples/apples comparison. Fixed rate vs fixed rate. Under this example, I would be paying $2497.5 more in interest every year, or 208.13/month. Imagine what you could do with an extra $200 a month.

Until next time.