Student Loans?

[Nirm9848]

HI all
I recently got accepted into RCSI, and Im wondering about sutdent loans...
Does anyone have any idea on how much I will be able to acquire? I understand I can get a line of credit from a bank but what about student loans?
Thanks

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[balkinator]

Most Canadian banks will give up to 200k if you have someone cosign

 

[CamTheFirst]

Most Canadian banks will give up to 200k if you have someone cosign

In Canada, you can also get provincial and Federal Student Loan. The max you would get is 13K per year. Even if your parents make 400K a year, with the tuition and living expenses in the 80K range or more per year, you are above the parent responsibility zone for the student loan and you would get it.

 

[jnuts]

I only know the details for Ontario and there's a lot of inter-provincial variation. Expect to get 6k-15k /year in government loans depending on your home province and financial situation.

The interest rate on Ontario loans is a lot higher than private loans (approximately central bank prime + 3.5%). The only advantage is that you don't need to make minimum payments on government loans while you're a student. Private lines of credit(LOC) have a minimum payment of about 2.5%/year even while you're in school. You can roll that into the LOC but that may impact your ability to fund the full 4 or 6 years if you're self funded. LOC also accrue interest during school while government loans don't.

Repayment on Ontario loans starts during residency (even though you're a fulltime student for all other aspects of the tax code) and can be quite onerous when compared to the LOC. The LOC can be kept at minimum payments until you're fully qualified. You can potentially reduce the government loan payments to interest only by making a financial hardship request every 6 months (which is useful but really annoying).

You also receive an income tax credit for a portion of the interest accrued on your government loans. But the higher rate on government loans more than cancels that benefit out. Ontario loans are tracking loans like the LOC and do not provide a buffer against a rise in interest rates.

One of the rarely discussed aspects of tuition funding is how Canada encourages education through the tax code. The US subsidizes student loans. Canada doesn't provide the same type of comprehensive loan but instead provides tuition and educational expenses tax credits which can be applied to future income. There is no limit to the amount of tuition credit you can bank to apply against your future income tax. That does shift a lot of the funding burden to the student years and makes the banks a lot of money BUT it makes repayment down the road a lot easier. If your parents or spouse is funding your education you can transfer these credits to them to offset the costs on an annual basis while you're still in school.

Tax credits are one of the ways physicians are able to pay off their student loans within five years of entering full practice.

For those of you in Ireland make sure that you're filing returns every year and collecting TL11A (http://www.cra-arc.gc.ca/E/pbg/tf/tl11a/README.html) forms from your school so you can start banking credits.

 

[CamTheFirst]

Thanks jnuts, great post as always.
I was just curious about the amount of tuition you can claim per year as a tax credit, Is there a maximum that can be claimed every year? Can you claim your whole tuition and living expenses every year? If there is no cap on the amount, that would solve everything. This is an excess of $80K which can be translated into $25K of savings in taxes if I transfer them to one of my parents.

Edit: after I checked CRA web site, you can carry the tuition and the educational amounts indefinitely, but you can only transfer a maximum of $5k per year to your parents.

 

[Nirm9848]

Thankyou! I really appreciate the information.

 

[Nirm9848]

I only know the details for Ontario and there's a lot of inter-provincial variation. Expect to get 6k-15k /year in government loans depending on your home province and financial situation.

The interest rate on Ontario loans is a lot higher than private loans (approximately central bank prime + 3.5%). The only advantage is that you don't need to make minimum payments on government loans while you're a student. Private lines of credit(LOC) have a minimum payment of about 2.5%/year even while you're in school. You can roll that into the LOC but that may impact your ability to fund the full 4 or 6 years if you're self funded. LOC also accrue interest during school while government loans don't.

Repayment on Ontario loans starts during residency (even though you're a fulltime student for all other aspects of the tax code) and can be quite onerous when compared to the LOC. The LOC can be kept at minimum payments until you're fully qualified. You can potentially reduce the government loan payments to interest only by making a financial hardship request every 6 months (which is useful but really annoying).

You also receive an income tax credit for a portion of the interest accrued on your government loans. But the higher rate on government loans more than cancels that benefit out. Ontario loans are tracking loans like the LOC and do not provide a buffer against a rise in interest rates.

One of the rarely discussed aspects of tuition funding is how Canada encourages education through the tax code. The US subsidizes student loans. Canada doesn't provide the same type of comprehensive loan but instead provides tuition and educational expenses tax credits which can be applied to future income. There is no limit to the amount of tuition credit you can bank to apply against your future income tax. That does shift a lot of the funding burden to the student years and makes the banks a lot of money BUT it makes repayment down the road a lot easier. If your parents or spouse is funding your education you can transfer these credits to them to offset the costs on an annual basis while you're still in school.

Tax credits are one of the ways physicians are able to pay off their student loans within five years of entering full practice.

For those of you in Ireland make sure that you're filing returns every year and collecting TL11A (http://www.cra-arc.gc.ca/E/pbg/tf/tl11a/README.html) forms from your school so you can start banking credits.

Thank you for your elaborate info.

 

[jnuts]

@MikeGir: You're right, I should have specified that only a portion of the credit is transferable. I think that the bottom line is that payment options are quite complex and visiting a financial planner might not be a bad idea.

Another limitation is that living expenses are based on a set amount given the number of weeks you're enrolled per year which may be less than you're actually spending.

 

[jnuts]

Thanks jnuts, great post as always.
I was just curious about the amount of tuition you can claim per year as a tax credit, Is there a maximum that can be claimed every year? Can you claim your whole tuition and living expenses every year? If there is no cap on the amount, that would solve everything. This is an excess of $80K which can be translated into $25K of savings in taxes if I transfer them to one of my parents.

Edit: after I checked CRA web site, you can carry the tuition and the educational amounts indefinitely, but you can only transfer a maximum of $5k per year to your parents.

You're right. I should have mentioned that only a small portion is transferable. The way you can use that credit to offset costs is by using it to pay the interest on an LOC. You can't use it to fund your education outright. Though if your spouse/parents had enough income to have that type of tax burden you're probably not too concerned about the financial side anyway.

 

[CamTheFirst]

Hi jnut, how did you work with the banks to get the 200K loan? The bank wanted a real estate collateral from my parents even though they have really high income and great credit. The bank said that they were afraid I would take off to Europe after graduation. The way the bank acted was like it would have been much easier if my dad would have applied for the loan on his own to buy whatever, without even mentioning me. Any tips would be greatly appreciated.

 

[jnuts]

Make sure you're asking specifically for the medical student line if credit. If that doesn't work maybe try another bank. Either another branch of the same bank or TD/BMO/RBC all offer very similar products. A bank manager with specific experience setting up medical student LOCs might help.

If it turns out to be a condition everywhere try extended family for a co-signer.