Debt in someone else's pants
// Harrison Pratt

If you can afford to pay with money that isn’t yours for your education, then go ahead, but if you can’t, then consider the scenario: postsecondary education is unaffordable, hence the need to take out a student loan. These loans, however, may be the death of you.

While studying in British Columbia, there are two government agencies, which may lend you money: the British Columbia Student Loan Service Bureau, and the National Student Loan Service Centre.

According to the National Student Loan Service Centre, this is how they operate: After the study period has terminated, the grace period starts. Within the grace period, which is six months after the termination of studying, payments are not required, but interest does start. Using the example of a $25,000 loan, the interest accrued during that time would amount to $625. The six months of this so-called grace period is there to allow you to find a job.

However, the assumption that you will be able to pay off your student loan debt after you graduate from post-secondary with your career job is a myth. In 2009, it was widely reported that student unemployment rates reached 20.9 per cent. According to a University of Toronto survey of recent graduates, as reported in the Uniter, only 40 per cent were actually employed in their field of study. Students who graduate with a degree are not only on the job search for a career in their field, but out of necessity they are competing within other job markets, which include the minimum wage market.

Whether you’ve found a job or not after the six months is up, the next step in the procedure begins, which includes a so-called agreement with the government called “consolidation”. A consolidation agreement would be sent out in the mail outlining how long it will take for you to pay off your loan, the type of interest rate to be used and if the grace period interest will be paid off immediately or added to the loan.

An option of fixed interest rate of five per cent and variable interest rate of 2.5 per cent may be available depending on the agency. The former interest rate would be set at a higher amount, but would stay consistent throughout the loan. The latter would start at a lower interest rate, but would fluctuate with the prime. The benefit of paying a larger monthly amount means a shorter pay period and less interest, which is hard to pull off for some folks.

The average time it takes to pay off loans is 14 and a half years, but can be extended to 19 and a half years with B.C student loans. Depending on the situation, loans may last longer.

Then, consider the financial drawbacks. The total cost of a $25,000 loan with a variable interest of 2.5 per cent, and adding the six month grace period of interest of $625 to the total loan, the total interest payable would be $8,888. This would be if monthly payments were $230 for a total of 14.5 years. Total cost for a $25,000 education: $34,513.

It could be worse: let’s consider if things don’t work out with the repayment process. If funds are lacking in your bank account from unemployment or low-wage with high costs of living, you simply can’t repay. From not honouring payments, you are charged non-sufficient funds from both the bank and the loan services. Compound this over a period of time and the result is detrimental.

Why should you suffer? Are you an amoral person? Likely not. You could continue on and live on a pittance but there is another option: bankruptcy. “Bankruptcy is a legal process that is available to anyone who is hopelessly burdened with debt,” according to B.C. Bankruptcy.

The point of this process is to give anyone the chance to start with a clean slate financially. The criteria for eligibility is fairly simple: you must owe at least $1,000, be unable to repay debts, your debts cannot exceed the value of your assets, and you cannot be currently bankrupt – sounds like most students.

The following assets can be kept by the individual: equity in a home of $12,000, work tools $10,000, housing furniture and effects $4,000, a vehicle that doesn’t exceed $5,000, and no limit for the amount of clothing you own! Most students who are in debt wouldn’t have anything more than that to be taken away from them, anyways.

The fear of having garnished wages disappears when you realize that your wages will most likely be too low to be taken away in the first place, considering the economic environment. Bankruptcy allows for everything you really need to survive.

Garnished wages would be an issue if you made more than a living wage, which is set at $18.81 for Metro Vancouver (interestingly enough, very far from the $10.25 expected in May for minimum wage). A living wage is an estimate of how much it costs to cover the basic requirements of living. Even then, the amount being garnished would be after your living expenses are paid for.

Since 2008, student loans are erased when bankruptcy is declared seven years after you cease being a student, which is considerably less time than the average of 14.5 years of debt repaying in the first place. The period of seven years is an increase from the two year minimum in 1996.

Take note that two years after 1996, the amount of student loan defaults had increased from 20 million to 60 million. This stat is to exemplify that bankruptcy isn’t something new that students haven’t used before. Of course, the requirements include acting in “good faith” in regards to loan spending and suffering in financial hardship, which means you can’t cop out of your loan if you’re doing fine financially. If you were living in a poor situation, the advantage to this option would be cutting the time in half for a clean slate.

Factor in all the challenges of scraping by with a full course-load, and the need for shelter, food, and other expenses, your ability to get the most out of your education is challenged. This can sometimes result in dropping out or getting kicked out for bad grades. In 2007, Stats Canada revealed that one in seven students drop out of post-secondary education institutions. Without a degree, you have debt, but no credentials to get your high-paying job.

For most students taking out a loan for a post-secondary education will most likely become a financial burden. With the high level of unemployment, unsuccessful graduations, and lifetime debt, the fruits don’t seem so appetizing, even with the option of bankruptcy. Consider your options before getting involved in high risk investment and, if need be, contact your local bankruptcy trustee.

//Harrison Pratt, columinst
//Graphics by Miles Chic

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© 2011 The Capilano Courier. phone: 604.984.4949 fax: 604.984.1787 email: editor@capilanocourier.com