Skip to main content

Our youngest son decided that he wanted to earn some money. Like a true entrepreneur, he started his own business: He sold golf balls at a public beach near our cottage. "Dad, this business is amazing! I sold 55 golf balls, and I made $53. The kid next door still owes me two dollars."

What he didn't remember was that he owes me $80 for the two rounds of golf that allowed us to find the 55 golf balls. So I explained to him the concept of debt. At the end of the day, I told him that he doesn't have to pay me back the $80 until he graduates from university – about 12 years from now. By that time, I'm sure I will have forgotten about the money. Time will tell whether he forgets, too.

The truth is, over one half of students will graduate from postsecondary school with debt – primarily from financing their education. A recent poll conducted by Leger for CIBC reveals that 51 per cent of postsecondary students today have borrowed, or will borrow, to help pay for school. No wonder. About three quarters of students won't earn enough money in their part-time work to fully pay for school.

Story continues below advertisement

The last National Graduates Survey conducted by Statistics Canada was almost 10 years ago (2005). At that time, the graduating class of 2005 had an average debt load of $18,800 (which was up from $15,200 a decade earlier), and the proportion of borrowers who graduated with debt of $25,000 or more had increased to 27 per cent (up from 17 per cent 10 years earlier). According to the recent Leger poll, 40 per cent of students today expect to graduate with debt of at least $25,000. So the trend is clear: Students are borrowing more to cover the increasing costs of postsecondary education.

As an aside, student debt can really impact finances after graduation. A past Survey of Financial Security conducted by Statscan showed that student borrowers had a significantly lower probability of having savings and investments than non-borrowers, and that borrowers with postsecondary education were less likely to own their homes. Finally, postsecondary graduates with student loans had, on average, lower assets and correspondingly lower net worth than those who did not have student loans.

Don't get me wrong – student debt can be worthwhile if it allows a student to create higher earning capacity. But the debt needs to be managed. Here's some advice for students who want to borrow prudently for an education (some of these ideas come courtesy of Consolidated Credit Counseling Services of Canada):

Rule of 10s. Follow this rule when borrowing for education: For every $10,000 in student debt, you should be able to earn $10,000 over a base of $10,000 annually to be able to pay off that debt in 10 years. For example, if you graduate with $30,000 of debt, you should be able to earn $30,000 over a base of $10,000, for a total of $40,000 annually in order to pay off that debt over 10 years.

Soften the blow. Although you may not earn enough in the summer to fully pay for a year of education, those earnings can make a big difference. You should save as much as possible, and consider working part-time during the school year to help cover education costs. But balance your work hours; it's tough to work more than 15 hours a week while in school and still excel academically.

Create a budget. You should use loan proceeds wisely. Identifying needs and wants will help, and vow to spend student loans only on needs. Don't spend your loans on a trip to Mexico.

Live lean. Most students in their late teens and early 20s don't have other mouths to feed, so take advantage of this time in life. Live frugally. If you can get by without a car, do it. You'll live with monthly bills most of your life, so avoid them now if you can.

Story continues below advertisement

Apply for bursaries and scholarships. Getting free money beats borrowing any day. Start the search for bursaries and scholarships a year ahead of the time you'll need the money. Check out these websites: ScholarshipsCanada, StudentAwards, CanLearn, and Service Canada.

Pay it back. After graduation, be sure to reduce your debt as quickly as possible. Start with any credit-card debt (since there is rarely relief for interest on credit-card debt), then follow that by paying down your student loans (you're generally entitled to a tax credit for student-loan interest). Make more than the minimum payment monthly if you can.

Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter