Student Lines of Credit a Good Tool for Funding Education, If Used Responsibly

By Krugel, Lauren | The Canadian Press, August 28, 2014 | Go to article overview

Student Lines of Credit a Good Tool for Funding Education, If Used Responsibly


Krugel, Lauren, The Canadian Press


Use student lines of credit with caution

--

CALGARY - The line of credit was only supposed to be for a cheap set of wheels to get Krystal Yee to her classes and part-time jobs.

But soon after she purchased her $1,600 used car, Yee maxed out the entire $7,000 the bank had made available to her.

"I tried to think 'what did I buy that was significant?' And besides my car, I was horrified to realize I had no idea where the money went. It just was gone," said Yee, now 31.

Banks offer lines of credit for students who may not qualify for government loans, or who have costs above and beyond what government loans cover.

Yee, who blogs about personal finance at Give Me Back My Five Bucks, said despite her experience, she believes a student line of credit can be a useful tool -- if used responsibly.

"If I was talking to someone about a line of credit right now, I would say to treat credit with respect. It's something that I didn't do. I was really abusive to my line of credit and it really hurt me in the end," said Yee, who lives in Vancouver.

When Yee graduated, she owed $14,000 in government student loans on top of her line of credit and credit card. She got out of the financial hole, but it was a painful journey.

More often than not, a parent will have to co-sign for a student line of credit, whereas for government loans, it's on the student's shoulders.

Yee said she couldn't have gotten her line of credit without her mom's signature. She says her mom had good intentions, but a frank talk ahead of time about financial responsibility would have avoided a lot of hardship.

"She probably thought I was responsible enough to know all that stuff, but unfortunately I wasn't," said Yee.

Janet Boyle, vice-president of unsecured lending at Scotiabank, encourages students and their parents to have a face-to-face chat with a financial adviser from the outset -- and to do the same after graduation.

"We want them to come in and talk to us, to just be mindful of not getting in over their head and being very focused and disciplined about what those next stages in their life look like," she said.

With a Scotiabank loan, students pay only the interest when they're in school and are given a year-long grace period after graduation before they have to start paying back the principal. …

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