Canadian federal loans: worse rates than bank lines of credit?

[Filius]

Hi all,

Canadian wrapping up med school in the States---took all my loans out from:

(1) Canada Student Loans: prime + 2.5%
(2) Alberta Student Loans: prime + 0%
(3) TD line of credit: prime rate + 0% (!!)

Now that I'll (almost) be making an income again, it's time to start figuring out a repayment strategy. Counter-intuitively, Canadian federal loans seem to be at a significantly higher rate than federal loans; it seems like I should just pay off all my federal loans ASAP using the LoC to take advantage of their better rates in the month before I graduate. Both seem to allow deferred payment until after residency, and both will be accumulating interest post-graduation.

Is this crazy? Have others done this?

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[750335]

I assume you got both alberta/canada student loan together? Isn't the canada student loan significantly less than the other two or am i confusing those? Assuming you got all 175k from asl, and the rest from TD, I'd actually pay TD back first. The higher 2.5 rate is more than overshadowed by the fact that the total amount isn't that much (all assumptions here), either way TD is actually the one you need to give their money back/release your guarantor.

 

[Filius]

I did get the Albertan and Canadian loans together, and you're definitely correct that the Canadian loan is much smaller than the Albertan (~1/6 Canada, 1/6 TD, 4/6 Alberta).

But it looks like Alberta has its own loan management interface separate from the NSLSC, so it seems like I could transfer only the federal portion to TD, then focus on paying down the TD balance at the lower rate while still making minimums on the Albertan?

I don't know if I'd be missing out on some sort of potentially generous future federal policy, but it seems like the best math---though certainly unexpected that the private market would be a better bet than the gov't.

 

[750335]

I did get the Albertan and Canadian loans together, and you're definitely correct that the Canadian loan is much smaller than the Albertan (~1/6 Canada, 1/6 TD, 4/6 Alberta).

But it looks like Alberta has its own loan management interface separate from the NSLSC, so it seems like I could transfer only the federal portion to TD, then focus on paying down the TD balance at the lower rate while still making minimums on the Albertan?

I don't know if I'd be missing out on some sort of potentially generous future federal policy, but it seems like the best math---though certainly unexpected that the private market would be a better bet than the gov't.

Unlikely you will miss any advantages from federal policies; as far as those go, those tend to be stable. You are right, the alberta portion is usually separate, so I think consolidating the other two works well. Make sure the TD rate is stable/fixed, but I'd focus more on getting that 2/6 out of the way. Alberta govt is the most flexible/understanding of those three.

 

[FlameBroiledDoc]

The interest on government loans is tax-deductible, while it isn't on your personal LOC. That can be hundreds in tax savings each year, depending on the size of the loan. If your cash flow allows you to carry the loans separately, do it. If you have to consolidate, so be it, but don't discount tax savings.

 

[ConfusedChemist]

Many students in Canada (myself included) will benefit more from moving everything under the LOC because most provincial rates are sky-high (i.e. prime +5%). So when you're looking at >100K with 8% interest it makes more sense to pay it off-no tax benefit is enough for that cost.

But if you're povincial loans are 0%, then you might be better off leaving it

 

[Mithril]

The interest on government loans is tax-deductible, while it isn't on your personal LOC. That can be hundreds in tax savings each year, depending on the size of the loan. If your cash flow allows you to carry the loans separately, do it. If you have to consolidate, so be it, but don't discount tax savings.

Are you sure it's a deductible? I believe mine was treated as a credit.

 

[Med0123]

Are you sure it's a deductible? I believe mine was treated as a credit.

yes, gouvernement loans are definitely tax deductible.