Debt 101: What even is it?

Debt is a pretty scary word, so let’s make it easier to handle

There are a few things to keep in mind when going into debt. First, would you need this money? If yes, then keep reading. You’ve probably heard of a million horror stories surrounding people’s crippling debt, but it is important to know that debt is not always bad. This is a bit of a stuffy subject, with a lot of financial terms, but once you get the hang of it you’ll be cruising.

Good debt vs. bad debt

Maybe you have heard of the distinction between good and bad debt and what that means exactly? How can owing people money, with interest, be a good thing? If you are going into debt for something that will have the potential to increase future wealth or increase future earnings then that is good debt. So, that would be going into debt for things like student loans, mortgages, etc. 

Now, bad debt is quite the opposite, as the name suggests. Bad debt is generally classified as debt that does not have a positive future impact on your finances or otherwise known as consumer debt. Credit card debt and consumer loans are what make up most of the category, as you can imagine racking up your credit card is not considered a good thing. Shocking, I know.

Now that we’ve covered that, let’s dive into the types of debt and loans that you will be dealing with while you are in school.

Government loans

The first thing that is important to know about government loans for students is that there are two levels at which you can receive loans and grants: federally (nationwide) and then provincially (the province you are in). First off, let’s talk about the difference between loans and grants. A loan is borrowing money that you have to pay back at a later date with interest applied to that amount.

Federal loans

When looking at loans and grants on the national level you will be dealing with the NSLSC, the National Student Loans Service Centre. With this service, your loans are interest-free while you are studying. They are all easily accessible through the NSLSC portal, where you or your parents are able to manage your student loans! Why not let mom and dad take care of the finances, right? Also, this is a federal-level loan which means anyone in Canada can access it.

Provincial loans

This is a little different on the provincial level, each province has its own system for this for example in Ontario it is regulated by OSAP, the Ontario Student Assistance Program. Whilst OSAP is for Ontario residents, it can be used to apply to any school in Canada so long as your permanent address is in Ontario. When applying to something like OSAP it requires separate applications for both the loans and grants. 

After accepting the loan and going through university/college you have six months after you graduate of freedom before you have to start paying back the loans. There is also an interest rate applied to your loan, just like on the federal level.

Eligibility

Eligibility for these federal and provincial loans is mostly dependent on your costs against your available money. What they want to know are things like how much is your tuition and fees? Are you living at home or moving out? Where is the school you are attending? Then they compare this to how much money you will be making while attending school? How much money do your parents make? What assets do you have? 

Basically, if they determine you are unable to afford it they will offer you money. How much you get all depends on your situation and if you will be eligible for more grants and scholarships. The grants are where it’s at too, you don’t need to pay those back. So, try to get as many of those as you can.

So, there you are. Now you have a good base knowledge of what to expect when applying for and receiving debt for going to school. Debt is a terrifying idea when you’re getting started, but remember there is good debt, and most importantly invest in yourself. Then you can just pay it off over time with payd, I mean what would this article be without a cheeky plug.