Pay back NSLSC/BC Loans with LOC or pay interest?

[dan0105]

Question for anyone with NSLSC loans (I have one through BC). Once med school is over (end of April) they start to acquire interest at a higher rate than the bank LOC. So...... do you guys think it is smarter to:

 

1. Keep the loan, pay the government's higher interest rates and supposedly tax-deduct the interest payments each year

 

OR

 

2. Just buy out the NSLSC loan with my LOC from the bank, which will be at prime, but I wont be able to tax-deduct any interest payments. (but as a side, i do like the idea of having all my loans consolidated)

 

 

thanks.

[babydoctor]

I'm wondering about this too.

 

All I've really been told is what you mentioned about claiming the interest on your taxes if you keep your student loan, and the other thing that has been mentioned is that if you are in a financial bind at any point, you can apply for relief from student loans but you'd be stuck paying your LOC payments. So, if you are reasonably sure you can make consistent payments (e.g. you have a partner who also has an income, you have no plans to have any children in the next few years, you're a good money manager etc), you'll probably save money in the long run by using your LOC. But if there's any question about being able to pay, keeping them as student loans is safer.

 

Also, make sure you confirm what will happen with your LOC after you graduate/after residency - it's my understanding that some of them switch over to a different type of loan with a different interest rate that might not be as good as what you have now.

 

Anyone else have any other thoughts?

[Starling]

I'm in the same boat. I agree with babydoctor. Paying off student loans with your LOC should be cheaper (as long as your interest rate isn't going to go up once you're done med school), but it's riskier.

[leviathan]

I think it makes more sense to put it on your LOC if I worked it out properly. Correct me if I did the math wrong using an example of $60,000 in student loans:

 

Government interest = $60000 * 5.5% = $3,300

LOC interest = $60000 * 3% = $1,800

Savings = $1,500

 

If you leave it on your government loans, federal tax deductions would be $3300 * 15% = $495. Provincial varies, I think BC is about 5% = 165$, for a total of $660 in tax credits.

 

So you will still save about $900 extra per year by putting it on your LOC, plus you have the convenience of having it consolidated in one spot.

[ubcredfox]

Like any interest bearing loan, risk is time dependent; as your time horizon expands, your risk increases. There are options to lock-in student loans at certain higher rates of interest, which may be useful if you think that interest rates will increase during the term of your loan repayment.

 

You may also consider that in certain provinces, in exchange for ROS etc. a percentage/portion of your loans will be repaid by the province/federal government. However, this can only occur if you maintain your student loans as they are (i.e. not paying them with the LOC). Look at whichever province you hope to match to.

[leviathan]

Right now it's either floating at prime + 2.5% or fixed at prime + 5%. Either way you're paying more than your LOC which is always at prime. That's a really good point about the forgiveness program though. That unfortunately only applies to family physicians, as I recently found out. But if you're in a FM residency you might be better off waiting two years to get the assistance. Not sure on that one...

[HycrestJIT]

For the Canada Student Loans, you can get student loan forgiveness of 8,000/year that includes time spent in your residency (this only counts if you're doing a rural family medicine program where the program's home base and your rural rotations lie within one of the government's designated zones).

 

So, for those of you thinking about or doing rural family residencies, 16,000 in loan forgiveness over your two years of residency training is nothing to scoff at.

 

Myself, I didn't pay off my student loans with my LOC and now I'm happy to have chunks of my Canada Student Loans forgiven because I've done a rural family residency.

 

Details at: http://www.canlearn.ca/eng/after/forgiveness/

[youngdad]

For the Canada Student Loans, you can get student loan forgiveness of 8,000/year that includes time spent in your residency (this only counts if you're doing a rural family medicine program where the program's home base and your rural rotations lie within one of the government's designated zones).

 

So, for those of you thinking about or doing rural family residencies, 16,000 in loan forgiveness over your two years of residency training is nothing to scoff at.

 

Myself, I didn't pay off my student loans with my LOC and now I'm happy to have chunks of my Canada Student Loans forgiven because I've done a rural family residency.

 

Details at: http://www.canlearn.ca/eng/after/forgiveness/

 

If your residency is in BC you can add to the savings 1/3 of the provincial portion per year until all paid off in 3 years. Its beautiful.

[dan0105]

Hmmmm.... I think I'm with Leviathan on this one. Going to just pay it off with LOC.

 

Youngdad's plan works pretty well too though, except you actually need to be doing a rural residency program for this to work right away. Although I guess you could always stall the 2 years, accumulate some interest, and then get the forgiveness once you move rural.

[leviathan]

Hmmmm.... I think I'm with Leviathan on this one. Going to just pay it off with LOC.

 

Youngdad's plan works pretty well too though, except you actually need to be doing a rural residency program for this to work right away. Although I guess you could always stall the 2 years, accumulate some interest, and then get the forgiveness once you move rural.

Are you going into family? It might be worth it to you. Based on my rough estimate, you'd save/lose about $900 per year depending on where you stored your loan for those 2 years. $1800 in extra interest over 2 years is not bad considering you will get back $8000 immediately in your first year of practice, if you go rural. If your residency is in a rural site, you start getting it back immediately.

[youngdad]

Hmmmm.... I think I'm with Leviathan on this one. Going to just pay it off with LOC.

 

Youngdad's plan works pretty well too though, except you actually need to be doing a rural residency program for this to work right away. Although I guess you could always stall the 2 years, accumulate some interest, and then get the forgiveness once you move rural.

 

BC FP residencies in small enough towns get 1/3 of their BC portion loans paid off each year UNTILL THEY ARE ALL GONE. What happens is you apply and your BC loans are held where they are (i.e. DO NOT GATHER ANY INTEREST!) for the year and at the end of the year 1/3 is paid. Starts again the next year. This can be done for 1, 2, or 3 years. You will never gather a cent of interest. You will never pay a cent in principal. You will never enter "repayment" status.

 

The federal portion is different. You enter "repayment status" and your loans gather interest. At the end of the year you $8000 remitted from you total. You can do this up to 5 years ($40,000) remitted. Not sure but I have heard a rumour that I can even still receive interest free status for a time and still be eligible for the rebate.

 

Putting gov't loans on my LOC makes no sense. ~18,000 per year removed for living and doing what I love in one of the most beautiful places on the planet? (And its not very remote!) Yah, sounds pretty good. And its residency. 2 years where I would be doing very similar work no matter where I was. My life is good.