Student loans are a great way to finance your education. However, the drawback here is the high-interest rates and the compulsion of borrowing the full amount of a loan. What if I said you could have a credit card feature in your student loan as well. Withdraw/borrow only the amount you need. Sounds fascinating? This is truly possible in Canada with the help of a Student Line of Credit. Let’s understand everything about this amazing finance option in this article.
What Is A Student Line of Credit?
A Student Line of Credit is a type of loan provided by a financial institution to students pursuing post-secondary education. It lets you borrow money repeatedly up to a pre-set limit. You can borrow the desired sum from a line of credit, pay it back and then borrow again, up to your credit limit.
An education line of credit is a product designed by the Canadian government for students that helps them pay for complementary financial needs related to post-secondary education, such as tuition or books. It can also be used to cover everyday expenses, like food and transportation.
How Does A Student Line of Credit Work?
Now let’s understand how the credit card feature is blended into this Student Line of Credit. With a line of credit, all you need to pay back is the money you originally borrowed. You also only have to pay interest on the money that you borrow. For example, suppose your line of credit has a $12,000 limit. You borrow only $4,000. This means you only have to pay back just the $4,000 and the interest accrued on this sum. Isn’t this a great flexibility that you get? With a loan, you would mandatorily receive a set amount of money and you have to pay it all back. You also have to pay interest on the total amount that you receive.
The student line of credit interest rate is typically lower than the rates offered on government student loans. However, the key difference is that here you’ll have to start paying interest from the moment you borrow money. The government student loan would require you to start paying interest only once you finish your program or leave school.
Professional Student Line of Credit
When you’ve taken your post-secondary education to a higher level, this line of credit helps cover costs, so you can focus on your studies.
The eligibility criteria include:
- You should be a Canadian Citizen or Permanent Resident
- You should be enrolled in an accredited professional education program, for example:
- Veterinary Medicine
Medical Student Line of Credit is a type of Professional Student Line of Credit where your profession is in the field of medicine.
Applying For A Student Line of Credit
Your financial institution will set the maximum amount of money you’ll be able to borrow. This limit will depend on the program you’re studying and the academic institution offering the program. It may also depend on your personal living expenses, credit history and ability to repay the money you borrow.
You can apply for a student line of credit at any time. You can apply either online, over the phone or in person. Usually, you are asked to provide proof that you’re either a full-time or part-time student at a recognized Canadian post-secondary institution to be eligible for a student line of credit.
If you do not qualify on your own, then you will need a co-signer (usually a parent or guardian) to sign your line of credit application. This co-signer becomes responsible for the outstanding balance if you cannot make the payments.
Insurance on A Student Line of Credit
You can choose to opt for optional credit protection insurance on your line of credit.
You don’t have to necessarily take loan insurance to be approved for a student line of credit. This type of insurance helps cover your loan payments if you can’t make them due to serious illness, accident, death or loss of your job. Note that federally regulated lenders, such as banks, can not add optional loan insurance without your permission.
Recommended Reading: 3 Questions To Help You With Your Student Loans
Accessing Money From Your Student Line of Credit
You will be able to access the available credit in your student line of credit immediately after you have signed all of the necessary documents and your application is approved.
Places from where you can access the available credit include:
- a branch of your financial institution
- an ATM
- through online, mobile or telephone banking
- by writing a cheque (rare).
Make it a point to borrow only the genuine sum you need to cover your needs while studying. Also, check whether you’ll be able to make at least the interest payments while you’re studying. It is wise to think about whether you’ll be able to repay the money that you borrow from a line of credit when you graduate.
Paying Back Your Student Line of Credit
You have to pay at least the interest even while you’re studying. After you finish school, most financial institutions allow you to continue to pay only the interest on your line of credit for a grace period of 6 to 12 months. Once this grace period ends, you must start to pay back both the money you borrowed (the principal) and interest. You’ll continue to pay interest until you repay your balance. You can start paying back the money you owe at any time, even while you’re still studying. Talk to your financial institution to find out their student line of credit repayment terms and conditions.
Read More: How To Pay Off Student Loans Fast?
Although a line of credit is a great option, the interest rates associated with it do not make it the best option. If you’re taking out a private student loan, ensure to shop around for the best interest rate. In case you want to save this effort of hunting for the best interest rate then all you have to do is fill this form ➡️ A professional team from UniCreds will get in touch with you to ensure you get the best student loan for yourself.
Thank you for reading this blog on ‘Student Line of Credit’. If you enjoyed reading this blog and would like to continue reading more about student loans then do check out our following blogs.
- Student Loan Debt-To-Income Ratios
- What Is The Student Aid Report (SAR)?
- What Happens To Unused Student Loan Money?