Chapter 12 Financial Aid and Funding Options
12.1 Funding Options
Planning for post-secondary education can seem daunting and may feel out of reach. It can feel like you cannot afford it. However, without post-secondary education, many people will never be able to afford many of the things they desire. There is a direct correlation between the number of years of education people have and the amount of money they make. The data is very clear. The higher your education, the more money you will likely earn. Therefore saying you can’t afford to go to school is more likely to keep you in the situation of not being able to afford the things you want from life.
StatsCan did a study called “Does education pay? A comparison of earnings by level of education in Canada and its provinces and territories.” It is clear that the higher the level of education, the higher the average pay.
If you want to enrich your education and skills, you should look into different avenues of funding. There are often several sources of income that can help you get through school.
Sources of Funding
Student loans are designed to help eligible students who otherwise may not be able to afford to access post-secondary education. If you decide to borrow money to go to college or university, government student loans are a good way to do it. Note that government student loans are different than student lines of credit from your bank. Student lines of credit usually end up costing you more because they charge interest from the day you take the money. This results in four years of interest payment for a typical university degree! There are several advantages to government student loans.
- Interest. You are not charged any interest while you are still going to school. Interest does not start until you complete your program (or quit or fail out). You have access to the funding throughout your schooling, but no interest is charged until you are finished going to school.
- Interest rates. The interest rates on student loans are usually much lower than typical lending rates. They are substantially lower than credit card rates and usually lower than lines of credit.
- Payments. You do not need to make any payments while you are in school. In fact, you do not need to start making payments until six months after your program ends. This gives graduates time to get a job after they graduate and get back on their feet financially before having to start making payments on the loan.
- Credit rating. You do not have to have built up a good credit rating to get the loan. In fact, unless you have been in default on a previous student loan, you are likely to receive a loan if you meet the other qualifying criteria.
- Awards. Applying for student loans can make you eligible for student grants (free money that you do not have to pay back!) Even if you do not qualify for student loans, the fact that you applied can help you qualify for other sources of income. For example, some post secondary institutions will not consider you for student awards if you have not applied for a student loan. They assume you do not need the money very badly if you did not even bother to apply for loans. Also, if you apply for student loans, the website automatically checks to see if you are eligible for other student awards (free money) through the student loans program. Often students are pleasantly surprised by additional funds after applying for student loans.
- Deferring Payments. Student loans have deferred payments available for people who go back to further their education again while still paying off student loans from their first credential. Students go back into an interest-free state while they attend school for their second credential. They will also defer payments if you qualify for low-income status. Sometimes it takes a little while before graduates are making enough money to start contributing full payments on their debts. There are many options to keep things reasonable when dealing with student loans.
If you would like to apply for a student loan, speak to the Financial Assistance and Awards Advisor at your college or university. They can assist you with the process. For BC student loans, see www.studentaidbc.ca. If you do not meet the Student Aid BC residency requirement guidelines, apply for other provincial loan programs from the province where you last resided for twelve consecutive months.
Bank Loans and Lines of Credit
Government student loans are better for students than bank loans and lines of credit for all the reasons listed above.
Other Sketchy Loans
Beware of loans that seem too good to be true. They usually are! Several loan suppliers purposely target those with bad credit and lure them into borrowing money. They tempt people with offers, saying they get the money easily and instantly. The problem is that usually the interest rates are very high (to cover their risk) and the consumer ends up paying far more in the end by the time they have paid back all the principal and interest. Storefront money lenders (e.g. MoneyMart and CashMoney) and more recently (and alarmingly) online money lenders (e.g. iCash) provide instant money for those who may spontaneously choose to spend money they don’t have. If someone has bad credit and doesn’t qualify for a bank loan, it is usually a good indicator that they shouldn’t be borrowing more money! Spend within your means and you will be a lot more financially healthy.
Loans from Family or Friends
If you have family or friends who have offered to loan you the money, this is often a great opportunity to pay for school. Often loans from family and friends come with special perks.
- Interest-free. They may be offered on an interest-free basis. This is a generous offer as you will not accumulate additional debt through accruing interest. If they are going to charge you interest, make sure to compare the rate to the student loan rate to see which is cheaper.
- Payment flexibility. Friends and family are often flexible about when you pay your loan back. They often have more sympathy about late payments due to being jobless, dealing with an illness, or just going through a difficult time.
- A word of caution. Families often have special dynamics that can make arrangements like loans very tricky. It is not worth sacrificing family relations in order to save a little bit of interest. Consider whether your relationship with the person extending the loan is stable enough to withstand the arrangement.
Sometimes family or friends offer contributing to your education through a financial gift rather than a loan. This is a unique opportunity that is all too often turned down.
As an education advisor, I have often heard students tell me that someone has offered to pay for their education. People often turn down the offer for many reasons:
- They feel it is too great a gift and they are uncomfortable with receiving it.
- Their pride stands in the way and they feel should be able to pay for it themselves.
- They feel unworthy of the gift.
As an education advisor, I have also had many parents, friends, and employers tell me they want to help fund someone’s education. They offer for many reasons:
- They believe in the person.
- They care about the person.
- They want to help the person succeed and want to invest in their future.
- They feel good about putting their money towards something that will make a tangible difference.
There are several reasons to accept or deny the gift. Consider them carefully. I hate to see students deny gifts hastily. Accepting a gift of education may end up being a win-win and something that brings great joy to them both.
If you have someone who has offered you funding to help pay for school and is offering it as a gift, consider yourself very fortunate; this is truly a special gift. Consider that denying the gift could be an insult to them. They may interpret that you don’t want them to be part of your life’s journey to future success. Keep in mind that someone likely invested in their future and they may want to pay it forward. At any rate, they have thought it through and decided that you are someone they want to help and invest in. Consider yourself special and worthy of their trust in you. The only thing you owe them is to use their money wisely. Work hard in school. Achieve the goals you set out for yourself. This will be your thanks to them.
Another word of caution. There are some exceptions. In rare circumstances you should not accept a gift for schooling. In some dysfunctional relationships, there may be strings attached to the gift that you are unwilling to abide by. If the giver of the gift has unreasonable expectations attached to the gift (particularly if the expectations involve something that makes you uncomfortable, is unsafe, or you are unwilling to do) then it makes sense to deny the gift.
Student financial awards are monies granted to students for varying reasons. Some are entrance awards intended for students entering post-secondary for the first time. Other awards are for students who are currently enrolled in a full-time program. Awards include two main types of grants: scholarships and bursaries.
- Scholarships. Scholarships are awards of merit to help finance further education. Merit is based on several factors. Some scholarships are for academic merit (high grades). Others are for community service merit or athletic merit. Scholarships are for excellence in the area to which the award pertains.
- Bursaries. Bursaries are awards based on financial need. They are intended to help those from low-income families or adults with low income. When applying for bursaries, applicants are usually asked to fill out a budget form to show their finances. The awards committee will then choose recipients who have financial need, but also those who have a financial plan that is doable.
- Grants. Grants can have very specific goals. Some community organizations, churches, or businesses provide grants for their members or employees or their members’ or employers’ children or extended families. Often students can meet the eligibility for a scholarship based on the activities of their families. You can be eligible for grant money just because your grandfather was part of the Legion, or because one of your parents worked for CP Rail, or because you work for McDonald’s on weekends, or you are part of a club. There are hundreds of eligibility criteria and there are websites that sort through your eligibility. Many grants have money building up year after year because people don’t apply. It is always worthwhile to apply for grant money. You may be the first eligible person to apply for a specific grant in years. Other ways to be eligible can include being part of a special target group, such as grants for single moms, for people who have been raised in foster homes, for women going into trades, or people going into specific needed careers such as nursing. There are numerous criteria. Apply! You won’t get the free money if you don’t apply!
There are numerous student awards to improve Aboriginal access and achievement and to support getting post-secondary education and reduce financial barriers. Funding can come in the way of internal school awards or from supportive native bands. There are Aboriginal Coordinators in most colleges and universities that can assist students and potential students in accessing funding and supports.
Registered Education Savings Plans (RESPs)
The Canadian government has an initiative that incentivizes parents to invest and save for their children’s future post-secondary education. Parents open an RESP for their children, preferably when they are young so they can save for more years. They contribute money into the account on a yearly basis. The government matches twenty percent of the contributions up to $500 per year. That means that over eighteen years of savings each of a parent’s children can get up to $9 000 in free government grants in addition to the money that was contributed. Additionally, the government can contribute more for lower-income families. As well, all the money deposited is tax-free and can be invested to earn interest and dividends. These savings can add up and provide a nice nest egg for post-secondary education. Check with your parents to see if they contributed to an RESP for you. If they did, you may have access to more money than you thought.
A Good Old-Fashioned Job
It is great if you can access free funds and low-interest loans. But that still may not be enough to pay for your education. Most students need to work hard during their summers to save up for the next year of school. Some students can fit in a part-time job during the school year to help with the finances. Even a short shift a week can help with providing some spending money throughout the school term.
Exercise: Identifying Sources of Funding