Post-secondary education has a cost that leaves many students thousands of dollars in debt upon graduation. But there are steps students can take to help manage their costs.
Rob Carrick, a personal finance columnist for The Globe and Mail, argues that before students can learn to limit their debt, they must have an understanding of what they are signing up for when taking out student loans.
“The thing about students is that they don’t really understand the concept of debt very well,” says Carrick, who is also the author of a personal finance book called How Not to Move Back in With Your Parents: The Young Person’s Guide to Financial Empowerment.
“They know that they’re borrowing and they know that it’s not their money and they know they’ll have to pay it back but they’re very hazy on all of this. It’s like, ‘live for the day’ and they don’t understand that six months after they graduate, at least on the government student loans, you have to start paying it back.”
Undergraduate students in Ontario are at a high risk of getting into debt, given the cost of post-secondary education in the province. Students pay on average $6,640 per year — the highest tuition fees in Canada — according to a Statistics Canada report based on 2011-2012 tuition fees. Statistics Canada also reported Ontario undergraduates face the highest tuition increase in the country with fees rising 5.1 per cent annually.
But for many students, tuition costs do not account for even half of their expenses. Living costs for students can be astronomical, with many students paying between $5,000 and $6,000 per year for their basic rent.
Most Carleton students will spend between $17,994 and $21,608 annually on tuition, books, and living expenses, according to the university website. Even if a student can consistently pay half of his or her costs throughout university, the average student would still graduate with at least $30,000 dollars in debt.
Going into debt is unavoidable for most students, but Carrick says the key to being a financially responsible student is to borrow smart. That means figuring out exactly how much money you can make and how much you need to spend to survive, and only borrowing what you need to fill the gap.
“Try to keep all your borrowing to the minimum so it’s more manageable when you graduate. Keep your head down. Don’t spend a lot and try to live as frugally as you can. Don’t aspire to live a more expensive lifestyle because you can’t afford it,” Carrick says.
Carrick adds that the dreaded activity of creating a budget is the number one thing students can do to anticipate and control their debt.
“The term [budgeting] sounds really boring, but I’ll simplify it. It’s all about living within your means. And sometimes that’s tough. When you don’t have a lot of means, there’s not a lot of living and that’s the student life. You have to be able to say, ‘I have this much money and I’m in school for this many months of the year, How do I make it last?’” Carrick says.
But making money last, keeping borrowing to a minimum, and sticking to a budget isn’t as easy as it sounds for some students.
After moving out of residence and into a house for her second year of university, third-year economics student Stephanie Dicks realized her financial situation was getting out of hand. She discovered dining at restaurants and never saying “no” to friends was eating a hole in her bank account.
“A lot of students think eating out is cheaper — you pay like $5 [to eat out] instead of going to the grocery store and paying $50 for groceries. And it’s not something you add up in your head. And a lot of the time we don’t mean to spend tons of money. But then your friend orders a drink and you want one too, and then you get a full meal instead of a salad and suddenly you’ve spent $30,” Dicks says.
“And I found that last year I tried to do everything. I went out every time there was something going on and you kind of have to learn that you can’t do that for your school and for your expenses.”
Dicks owes around $20,000 in government student loans after her two years of school, and admitted she overspent during that time.
In the upcoming fall semester she plans on taking only three courses, which is the minimum course load students are allowed to take while maintaining full-time status.
“I want to work as close to full-time as I can while doing school too. I don’t want to take a full semester off but I need to work, I want to bring my debt down,” Dicks says.
Carrick says if students can manage to work during school, reducing their course load is nothing to be ashamed of.
“There really is a stigma I think against being a part-time student and slowing down the process. I don’t see anything wrong with that. It sounds like smart money management to me,” he says.
“Nothing helps the money last like bringing money in so if you can work during school, if you can manage it, that will help. I would also encourage people to consider a gap year or break up their studies.”
Once students understand the need to budget, Carrick says the next step is to get first-hand advice.
“Go ask your parents how much stuff costs. Say, ‘what costs can you point out to me?’ If you’re living off campus, ask, ‘how much does it cost to buy a week’s groceries?’ You’d better find that out. How much does it cost for internet, for a cell phone? Parents know and they can help you,” Carrick says.
Another good way to budget your money is to research budgeting tools online. Scotiabank has a student budget calculator available on their website.
Mike Henry, the senior vice-president and head of Retail Payments, Deposits and Lending for Scotiabank, says creating a financial plan is good habit for students to start.
“There’s sometimes an intimidation factor out there when it comes to creating a financial plan but it’s really not that complicated and I think it’s probably the best financial habit that any Canadian can build to set themselves up for success,” he says.
Perhaps the most polarizing issue around student finances is the question of whether students should have credit cards. Carrick says students should avoid them at all costs.
“You have to avoid credit cards, those are a debt trap for students. Students should flat out not have credit cards. Credit cards are for people who have jobs,” Carrick says.
Henry say students need to learn early to use credit cards wisely in order to build good credit scores that will help them later in life.
“It’s important for people to build good habits and to build credit the right away. The key is to use it wisely and to make sure you’re able to pay it off each month,” he says.
He also says credit cards can have their benefits, even financial ones.
“Scotiabank’s L’earn Visa offers cash back for students on whatever purchases they do make and we’ve also got our Scene debit card or credit card and those cards offer points toward free movies, which is a great way to help ease some of the budget strain and still be able to have some fun and seek some entertainment,” Henry says.
Ultimately, learning to control debt is about being honest with yourself about your spending habits and making changes where you can.
“It’s just, you can’t do anything in excess. You have to find a balance between like, don’t go out Thursday through Sunday, go out Thursday and Saturday or go out Friday,” Dicks says.
“Find cheaper alternatives. Instead of going out drinking, buy a six-pack, drink at home. I’m not saying you should live like a monk, but you are going to have to cut corners and deny yourself,” Carrick says.
Perhaps the most important thing for students to know is that all mistakes can be fixed, Carrick says.
“If you’re two years in and $20,000 in debt, don’t get too down on yourself. You’re not wrecking your life, you can fix the problem, but you’ve gotta get a handle on the debt. You need to plan going forward. You know where you’re being extravagant. Cut it out,” he says.
But as frustrating as living frugally can be, Carrick says it is important students know they will not have to live that way forever.
“Once you get into the workforce, everything’s different; a good regular income and you’ll live a totally different life. But if you’re carrying massive debts, that’s going to hurt your ability to enjoy your working life.”
