April is usually a great time for most students who are graduating from College or University. Exams are nearing completion and the next chapter in their lives is just around the corner.
The only challenge is that in most cases, students today can’t find appropriate work in their studied field and may have to take a lower paying job initially to build their employment value in the marketplace. Realizing that it could take years before they can afford to own real estate they may move back in with Mom and Dad and last, but not least, is that their post-secondary education tuition that they funded with Government loans is up for payment. For those that have taken on the borrowing path to higher education, the average debt facing these students is approximately $30,000.
In today’s competitive job market, a post-secondary education is a pre-requisite for most opportunities in the market place. You will have a very difficult road ahead if you don’t have a degree in your chosen field. Some students are fortunate; Mom and Dad may have been able to save for this rainy day with the use of a Registered Education Savings Plan. Unfortunately not all students will have this good fortune and the only way to help fund their future is by taking advantage of a Government education funding vehicle (OSAP).
The latest study I could find shows that the average student in Ontario owes the Government approximately $28,000. Ontario post-secondary tuition cost can range anywhere from $8,000 – $22,000 annually per year. Between 2012 and 2013, more than 400,000 students borrowed money to help pay for more schooling claims the Canadian Federation of Students.
Over the past few years, according to the CIBC Centre for Human Capital and Productivity at Western University, 14% of people with federal student loans have defaulted within three years of leaving school.
If you are having difficulty making your loan payments a University of Western Ontario survey suggested that you apply for repayment assistance. The Government can reduce your monthly payment in accordance with your income, forgive interest on the loan and in some cases waive payments against the principle.
Currently the Liberal government has been forced to write off nearly $200 million in outstanding loans. The Government has also taken steps in order to make paying off student debt easier. They have increased the income threshold so that graduation students now have to earn $25,000 annually before graduates are required to start making payments towards their debt.
Every generation has a greater opportunity than the past generation. College and University graduates today will truly shape a new and exciting world for us. The funding of this education is not a cost but rather an investment. Like all good investments it takes time to see the return on your dollars. The important thing I would recommend to graduating students is to stay financially focused, live within your means and don’t be afraid to take a step back in the job market to show your potential. I talk to business owners every day and we need the next generation to realize starting from the ground up is okay. With good habits, time and perseverance, this crop of graduating millennials will be our future leaders.
David Somerville is a Certified Financial Planner at Capital Wealth Management.