I started university in the mid 90’s and back then university student loans were distributed by the government. I needed some loans to pay out of necessity. While my Mom gave me the best financial advice I could have received indirectly, our family had to rely on additional help for the post secondary education Mom positioned my sister and I for so well. Shortly thereafter, prior to my graduation, the government tired of defaulting borrowers and shifted the student loan program to the big banks. Regardless, I finished this part of my education with sizable university student loans.
After graduation, new grads are given a grace period before they have to start repaying their loans. I had moved out west to Calgary to look for work but the time eventually came when I had to start making monthly payments against my university student loans. I say loans because the money borrowed was lent to students both from the Canadian and Ontario governments.
I wasn’t making much in an entry level position with a major telecommunications company and the payments on the loan were quite oppressive. I switched jobs a few times and in the end determined that being a call centre representative wasn’t my calling so I decided to move back to Ontario to return to school. Working toward a graduate degree was an option but also meant improving my undergrad grades and getting a masters. In the end I decided to attend a 3 year college program in Information Technology – I needed to learn how to do something. An added bonus was that by re-entering school my university student loans were frozen until I graduated.
I once again required student loans, but this time from my bank, for my college education. The amount I would need to borrow was significantly less as a diploma costs a lot less than a degree in Canada, and, this time around I was living at home and had a part time job tending bar / karaoke host (yes, I sing – another story!).
I graduated with a good average grade and coupled with my university degree and real business experience I landed a very good internship position which would, in time, lead to a good government job with the Province. Prior to landing the permanent job the vaunted grace period once again disappeared and I was back to paying not only my college student loan but also my much larger university student loans.
When I initially spoke to a rep regarding my college student loan I learned that the interest rate I would pay was Prime (the banks prime) + 3.5%. I was floored. An ugly rate. This loan had to go asap (although it didn’t). My university loan interest rates were better, even though I owed more on them. The interest on the Canadian portion of the loan was Prime + 2.75% and the interest on the Ontario portion of the loan was Prime + 2%.
It took 4 years and the prospect of buying a home (or better yet, qualifying for a loan for a home) for me to start to attack these debts beyond the minimum payments. Although it was the smallest loan at the time I figured paying off the college student loan I owerd to the bank made the most sense. It was a lot of interest, proportionally. Plus, I was saving for a down payment on the house and this was the smallest of the 3 loans.
Years went by and I continued to pay off my university student loans month by month, minimum payment by minimum payment. We’ve mentioned that over the past 2 years or so I have become keenly focused on our personal financial plan as we enter the foray of personal finance. Debt reduction is a key part of our personal financial plan. We had a logical choice to make – mortgage or refinance student loans – which debt makes the most sense?
- Mortgage: 3.62% fixed for another 4 years
- Federal Student Loan: 5.75% variable rate
- Ontario Student Loan: 5.00% variable rate.
Given that the base Bank of Canada rate is 1.00% (and the banks hike this up) is historically low and realistically has to go up eventually, the variable rate loans seem prime to increase how much interest we’d have to pay. We were decided: paying off the university student loans was our best choice – and the choice wasn’t even close.
Just how much more did we have to pay?
|Payment||Principal||Interest||Total/Mo||Term (Mos)||Total Owing|
Each and every month almost $300 comes out of our account. The interest is much lower than it was years ago when I was barely paying off principal and most of the payment was going toward interest. A mistake – i’m sure I should have increased payments, made lump sum payments – done whatever I could have to pay down my university student loans.
So in mid July, Mrs. SPF and I looked at our savings, our emergency fund, our projected personal finances and decided – let’s make this university student loan gonzo! Get rid of this BIG interest debt. Pay it off prior to lil’ SPF’s arrival. Free up almost $300 a month.
I’ve felt held hostage to these loans for 14 years and (assuming interest rates don’t rise – which I suspect they will) I was looking at paying the Canadian portion for just over 4 more years and the Ontario portion of my university student loans for just shy of 6 years. Enough was enough. Time to pay this one off and focus on our mortgage and save for retirement.