Vic, Ben, Terri, John, John.

In my previous life I was a banker. Wait no – in this life I was a banker. Enjoyed it a lot as well. Right up until the point where the center I worked in was closed down and the jobs were shipped back East and overseas. Something about the costs of the center being too high to justify maintaining. Story of my professional life. Given the state of the economy I understand why they did it, in the meantime it’s a horrible horrible blow to the self esteem. But that’s another rant altogether.

A couple of days ago a friend and former co-worker of mine asked me for a little advice on student lines of credit. So I took the opportunity to phone around and do a little research on the subject. I posed as a full time student going into the first year of a Bachelor’s of Science degree with a part time job on the side.

Before I get down to what I found with each bank, I just want to clear the air on a few things. I am aware that the Government Student Loan program exists, I am also aware of the benefits of not having to pay any interest while you’re in school. The point is that if you don’t want to go that route (I wouldn’t want to go that way again, I was screwed, horribly by the government when it came time to repay mine) this is an alternate option that has a few luxuries:

– I find Lines of Credit to be more flexible than loans. Sure you need to make an interest payment every month, but you can also borrow only what you need from the account and it works better than a lump sum sitting in your chequing account. Human nature dictates that lump sums of cash prompt people to spend it.

– Lines of Credit also give you the ability to use the available balance to pay down your interest payment. If you can’t make the payment while you’re in school, you can take out the money, redeposit it and have it count as a payment. That’s a last resort option and doesn’t get you anywhere, but it’s an option nevertheless.

Anyways this is what I found:

TD Canada Trust. (Vic)

The break down
Limits: Up to 10k/year for full time students a max of 40k over the course of the degree.
Current Rates: Prime (2.5%) + Fixed (1.5%) (If credit is good)

Repay Policies:
– Interest only payments for 1 year after graduation
– 3% of balance owing + Interest after one year.

Items of note:
– Line of Credit can function like a chequing account, work from your debit card and with employed initiated direct deposit.
– Free drafts and cheques for Line of Credit.
– Any desired extras can be negotiated through the branch.

Thoughts:
I like TD, I combine them with Scotia for my personal accounts. The Student line of Credit is pretty standard for what you’d see in Canada. I’d set the bar with this one. The functionality of the direct deposit is nice, so you don’t burn cash on a chequing account, but if memory serves me correct, the TD Student Chequing Account is 25 transactions for free, so the two can be used together quite nicely.

Bank of Nova Scotia (Ben)

The break down
Limits: Up to 10k/year for full time students a max of 40k over the course of the degree.
Current Rates: Prime (2.5%) + Fixed (2.75%) (rate depends on you credit score, but 2.75% is the lowest tier.)

Repay Policies:
– Interest only payments for 8 months after graduation.
– 3% of balance owing + Interest after 8 months.

Items of note:
– Line of Credit can function like a chequing account from your debit card.
– Free drafts and cheques for Line of Credit.
– Direct Deposit is allowed on the account, but deposits are subject to hold. (no idea why)
– Any desired extras can be negotiated through the branch.
– I was reinsured (repeatedly) during the conversation that unless my credit is spotless, I’d more than likely need a co-signor.

Thoughts:
This one caught me off guard. For a bank that is conservative and markets itself to students/youth you’d imagine they’d be a little more in line with their competitors. Or at very least more open to the idea of lending to students. They place below TD and I’d avoid these guys at all costs – unless I was horribly misinformed.

Royal Bank of Canada (Terri)

The break down
Limits: Minimum 5k to whatever amount you need for school and living expenses. Limit of the SLOC is determined by the costs of going for the entire degree, instead of determined on a year to year basis. (Like the other banks)
Current Rates: Prime (2.5%) + Fixed (1.00%)

Repay Policies:
– 1 year of interest payments after graduation.
– However, after the year, the fixed rate is ‘renegotiated’ to Prime (2.5%) + Fixed (3.5%)

Items of note:
– Very flexible borrowing policies.
– Line of Credit does not allow for direct deposit from employer.

Thoughts:
I’ll be honest, this one caught me off guard. As did the pleasantness of the service, Terri did an amazing job exploring all of the options open to me. Even tried to potentially deflect business by offering and exploring the Government Student Loan programs. Even the tele-banking system was easy to get around, which can’t be said for Scotia and Servus. The Line of Credit itself is bittersweet. So far it has the most attractive interest rates and the flexibility of being able to borrow the amount you want – within reason of course. But, since you calculate the total amount of your Line of Credit in advance and before your first year, you might be vulnerable to tuition increases. Also after a year of interest payments your rate goes up to 6%, which would make it the highest rate of all the SLOCs.

Canadian Western Bank (John)

. . . I was informed by John that CWB does not offer SLOC’s.

Thoughts:
That was easy. . . [beep] you Staples for ruining that line forever!

Servus Credit Union (John)

The break down
Limit: $7500/year up to 30k during the degree term.
Current Rates: Prime (2.5%) + Fixed (1.00%)

Repay Options:
– Interest payments for 1 year after graduation.
– repayment terms are set to 10 years.
– After graduation SLOC becomes treated like a loan and rates become renegotiated every four years. SLOC is vulnerable to long term interest fluctuations.

Items of Note:
– Servus offers an in-house student loan program that works to complement the ones offered by the government. John was very insistent on making me aware of that program.

Thoughts:
The only drawback to this one is that you have to be Albertan to qualify, this is perfect for the friend I’m writing this for, but anyone else who might stumble across this, this may pose as a bit of a barrier. I’ll call this one RBC’s little brother Line of Credit. Same general idea of RBC’s SLOC. Much like RBC’s SLOC, the rate has the potential increase once the student has graduated. Personally, I like to support local businesses, so if I had to go with an SLOC, I would do this one over RBC.

Reminder:
– All Student Lines of Credit require you to make Interest only payments while you’re in school.
– All the information gathered is from websites and telephone calls. Obviously interest rates are subject to change and if I was misinformed at any point, that should be reflective of the sources of information and not the researcher.
– It wouldn’t make sense to secure the Line of Credit against collateral, since the fixed rate portion of the LOC’s are low to begin with. Plus if you have a house to potentially fix against, go the Home Equity Line of Credit route.
– I know I skipped over CIBC, HSBC and ICICI. The fact is that I don’t like CIBC and while I don’t have anything against HSBC or ICICI, I feel the banks I chose give a good indication of what’s out there.

Conclusion:
Depending on how much is needed to be taken out I’d go with either Servus Credit Union or RBC. If you go with RBC, after the degree is completed I’d look at transferring the loan to a lower alternative or fixing the Line of Credit as a loan. I would do the same thing with Servus, but there’s less urgency to do so if rates stay low. If you’re a mature student, with spouse and a house, look at a Home Equity Line of Credit. They’re handy to have around, generally have the lowest interest rates of Lines of Credit, you don’t have to use them if you don’t need to and good ones don’t cost anything for being dormant. Of course if you can finance schooling on a Home Equity Line of Credit – do it. It’ll be cheaper in the long run.

I hope this whole thing was helpful.

~J

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