government loan vs. LOC

[Mac8]

I am a bit confused as to the benefits and draw backs of a government loans vs. an LOC. Is the gov't loan difficult to qualify for? Is it enough money? I have never had to take one out before as I have always worked while in school to cover my costs. Any clarification on this matter is appreciated.

[agregson]

Most students are not able to secure enough money from student loans to cover all of their tuition and living expenses, so they often require a line of credit from a bank in addition to their government student loans.

I would start with applying for student loans and seeing how much you qualify for. The primary advantage of student loans is that they are interest free during medical school. Also by applying for government loans you may be able to also receive bursaries (ie. the canadian millenium bursary) which you wouldn't be obligated to pay back. Thirdly, some provinces have loan forgiveness programs where if you exceed a certain amount of debt they will reduce the amount you that you have to repay.

The major disadvantage to government loans is that they charge prime+2.5% interest when it comes time to pay them back. The interest that you pay is tax deducitble.

The obvious advantage to a bank LOC is that they'll lend you oodles of money. You won't have to worry about cash flow if you have access to a LOC. I have a $90 000 limit on mine, which I could increase to $125 000+ if I wanted. You should be able to get your interest rate at prime. At the end of med school you can compound your student loan onto your LOC and avoid paying the government prime+2.5% which is nice. Unfortunately the interest on the LOC is not tax deductible, but because the interest rate is lower you actually save more money by paying off your student loan through your LOC than the tax savings of paying the higher interest rate.

The disadvantage is that you are required to make monthly interest payments on the balance. So if you have no money at all, you have to draw money off your LOC to pay the interest (in essence you pay interest on interest).

Good luck!

[Mac8]

Thanks for the excellent explanation.

I have worked for the past few years and have actually saved my entire med school tuition. Essentially what I need to obtain funds for is living expenses. I think what I will do is, as you say, apply for a government loan and see what I am eligible for and then go from there.

So do alot of people end up getting both a loan and a LOC?

[UBCmed09]

So do alot of people end up getting both a loan and a LOC?

Very common. I would say the majority but I hesitate as I am constantly amazed at how many of my colleagues have physicians as parents (who help them out financially in a big way).

I know I almost didn't apply to medical school before I seriously looked into the details because, coming from a background of poverty, I simply assumed I wasn't able to go to medical school since I had no means to pay for it. This was before I knew about the LOCs made available to us.

[Smurfette]

Thirdly, some provinces have loan forgiveness programs where if you exceed a certain amount of debt they will reduce the amount you that you have to repay.

BC has a loan forgiveness program (in lieu of the millennium bursary). Unfortunately, I believe that it does not apply to students in professional school programs (eg. medicine, dentistry, law).

[EESH]

When do you hear back about the canada millenium bursary? Is it right when you submit your application or after they review it?

[flying kumquat]

I think that depends on your home province. For Nova Scotia student loans, you hear in the summer the year after you've received your student loan and it is applied straight to your debt (i.e. they don't send you a big cheque). I recall hearing classmates from other provinces talking about getting them in the fall, though.

[Satsuma]

For Ontario the millenium bursary comes out later, so usually (at Ottawa) you pick up your cheque when you pick up the second intallment of your OSAP.

For loan forgivenes (or student opportunity grant I think it is called), it is applied to your debt/account the summer after your school year is done. So say the max debt you are allowed to accumulate is 7k and you got 9500k that year. Then they will apply a credit of 2500k to your account that summer.

[SSudS]

I did a quick search around, but didn't find anything. Should one apply for their student loan first and then go get their LOC? or will having the student loan affect one's ability to get an LOC approved? I remember from when I had student loans before, I never had to indicate what was available in my personal LOC...I just want to make sure I can get through this without screwing up my credit rating. Thanks.

[EESH]

When I signed up for my LOC, the guy at scotia said that if I already applied for OSAP, then I can put the estimated value on my LOC application. If I hadn't, we can just leave it blank. Either way, OSAP does not affect your ability to get an LOC, or to get the maximum amount (150k) for your LOC. And likewise, having an LOC has no effect on your ability to get OSAP. There's no where on the OSAP application where you mention your LOC.

Hope this helps.

[dgibb]

canada millenium bursaries are just for ontario students?

[Poolboy]

EESH is right - when you apply for your government loans you just put any assets you have (savings, car over $5000, etc.) - but not your LOC. As well, when you apply for your LOC you can ask for the max and they should, and usually like to, give you the whole thing.