Bank On Your Student Loan
When your student loan money goes into your bank, it doesn't have to just sit there in your chequing account. Chequing accounts don't usually pay you much interest.
If you're using up your student loans every year
Even though you'll gradually draw down your loan money for rent, books, food and other expenses, you'll be starting with a high amount every time you get your new loan. That's why you could make an extra $50 or $100 over your school term just by keeping it in a high-interest savings account.
You could also use a term deposit or GIC, but whatever you use must not penalize you for taking out the money when you need it. Make sure it's not locked in!
Another bonus is that making interest off your loan might help motivate you to leave your money in the bank as long as you can.
This would help you cut costs – as long as you didn't borrow it somewhere else, at higher interest!
Make the most interest possible
Consider the long-term payoff from taking a few hours of time to set this up. If you only earn $75 a term this way, that comes to $150 a year.
That's $600 free money at the end of a 4-year degree program. And if your money is still in the bank earning interest this whole time, it'll compound to even more than that.
But what if you're already in your last year? Maybe even in your very last term?
Well, if you saw a $50 on the street, wouldn't you scoop it up?
If you're not using up your student loans every year
If you'd like to take a year "off" student loans but can't afford to lose benefits by doing that, banking offers another option – if you have the willpower.
You can take the loans you're eligible to receive, but force yourself not to spend it all.
Note the words 'eligible to receive'. Don't misrepresent the funds you need or you risk trouble later on. The government runs audits to make sure people gave their correct income, etc. Even if you make an innocent mistake, you'd risk an 'over-award' notice telling you to repay the extra amount.
But if you’re able to save some of your eligible amount, keep that stashed in your high-interest savings account, along with any extra money you can save along the way.
The smartest way to spend your interest payments…
Before your final week of school, use your interest profits to help pay off your student loan. Do this before your last day of school because on the last day, the government starts charging you interest on your loan. Yes, that’s right, even during your 6-month grace period when you don’t have to make payments.
The government will charge you more interest than you’ll get from having money in the bank. So you'll get more bang for your buck if you use all your available bank account holdings now to cut down on your debt.