Not Applying for Student Loans Means Losing Free Money

Before Dylan Bauer went to university, he took a gap year and worked three jobs to save up cash to pay for school.

Bauer had heard horror stories about student loans and was understandably nervous about taking on any debt. But he soon realized that not applying for financial aid at all might leave free money on the table.

By the time he started school at the University of Lethbridge in 2016, Bauer quickly found that student life was more expensive than he thought.

Even with his gap-year income and money from the registered education savings plan his parents opened for him, Bauer needed a part-time, on-campus job to cover costs.

Applying for loans gives you a chance at free money

Despite his initial skepticism, Bauer revisited the idea of applying for student loans to see what he might qualify for. He was pleasantly surprised when he was approved for federal grants as well as loans.

“If I never applied, that would have been $9,000 I would have missed out on,” says Bauer of the federal grant money he received.

🤓 Nerdy Tip: Federal grants don’t have to be repaid, but you have to fill out a student loan application in order to be eligible for them.

Excess student aid can be saved or invested

Bauer, who today works as a resident stage technician in Calgary, says he took out about $46,500 in government student loans and grants, including the $9,000 grant, $24,000 in provincial loans and $13,500 in federal loans. In all, his tuition was $30,000 over five years.

“It was really nice to have that cushion,” Bauer, now 27, recalls. “Everything that I didn’t need of the loans I was just putting into savings, so I had probably five or six months’ worth of expenses. I knew that I could survive that long without having to worry.”

Because they carried a variable interest of 5% to 7%, Bauer prioritized knocking out the provincial loans first, paying them off in full a few months ago. All that’s left, he says, is the interest-free federal loan.

How to (responsibly) apply for and use student loans

Student loan debt is a growing source of financial strife for Canadians, and soon-to-be students are rightfully cautious.

According to the latest research from Statistics Canada, Canadians who graduate with a bachelor’s degree owe an average of $30,600 in student loan debt. That’s up a staggering 50% in the past two decades. Meanwhile, as a whole, 1.9 million Canadian borrowers owe $23.5 billion in student loans as of 2022, according to government data.

While Bauer was prudent about managing his student loans, not all borrowers are as disciplined. And that’s when student loans can become problematic, says Doug Hoyes, co-owner of Hoyes, Michalos & Associates, a consumer proposal and licensed insolvency trustee firm based in Kitchener, Ontario.

To avoid student loan debt from spiraling out of control, here are some strategic steps to follow:

1. Exhaust other financing sources. Apply for as many scholarships, grants and bursaries as you can, work part-time while you’re in school or see if your parents are in a financial position to help pay for your education. By exhausting all of these potential financial sources, you’ll limit the amount of loans you need, he adds.

“You want to make sure you have researched every possible grant and bursary that’s out there, because that chips away at what the cost is going to be,” Hoyes says.

2. Consider living at home. In some provinces and cities, living expenses outweigh tuition costs. Consider going to a local university to start and live at home to save money, Hoyes advises. This can dramatically limit your reliance on student loans to fund living expenses.

3. Borrow only what you need. While you might qualify for aid that exceeds your estimated expenses, avoid taking out more than you need for school, Hoyes advises. This is especially true if you tend to overspend, aren’t disciplined with budgeting, or if you’re not 100% sure about your career path.

4. Map out a repayment plan. Student loans have to be repaid no matter what, so it’s crucial to make a clear plan for how you’ll pay the money back. This involves understanding how much your industry pays for entry-level roles and what your living expenses will be after graduation. You might have to adjust your plans (i.e. get a roommate, choose a less expensive area, etc.) to afford your student loan payments and other day-to-day expenses.

5. Understand how student loans impact your credit. If you have designs to buy a home or take out a car loan soon after graduating, your student loan debt could be a barrier, Hoyes notes. Not only could student loans limit the amount you can borrow on other loans but your credit score could take a hard hit if you ever fall behind on payments, which might also disqualify you from other forms of lending.

“If you have a credit card and you’re not able to pay it for whatever reason, you can go bankrupt and eliminate that debt,” Hoyes points out. “But with a government student loan, you have to be out of school for seven years before you have any opportunity to apply for relief in bankruptcy. You’ve got to really think hard and long before taking on that kind of debt because you are going to be stuck with it for a considerable period of time.”

What student financial aid is available in Canada?

The Canada Student Financial Assistance Program offers federal and provincial loans and grants to full- and part-time students. However, there’s a limit of 340 weeks in which full-time students can receive student aid.

You must apply through your province or territory to qualify for both federal and provincial student loans and grants. Here’s a quick overview of your options so you don’t leave any money on the table:

Canada Student Loans
These federal student loans can be used to cover tuition, fees, and living expenses. The best part? As of April 1, 2023, these loans come with 0% interest. Plus, if you encounter financial hardship and are struggling to make student loan payments, you might qualify for reduced payments or payment elimination by applying for the Repayment Assistance Plan (RAP). However, if you’re approved for RAP, you must reapply for assistance every six months.

Canada Student Grants
Based on your family’s income and household size, you might be eligible for multiple federal student grants to pay for school. Grants don’t have to be repaid so it’s free money. For the 2024/2025 school year, you can receive up to $4,200 per year (or up to $525 per month of study) in federal student grants.

Provincial student loans and grants
Each province and territory in Canada offers its own financial aid programs that may come with additional benefits, such as provincial grants, bursaries and scholarships. However, unlike federal loans, some provinces charge interest on their loans.

How much aid you can get
The exact amount you’re eligible for in government student financial aid depends on several factors, such as: