Line of Credit vs. Student Loans: How To Choose What’s Best For You
As you begin repaying your student loans, it’s worth considering transferring that balance over to a line of credit instead. What makes sense for you will depend on your professional situation as well as current interest rates in private markets. While you might continue on with your current loan arrangement, it is worth making the calculation with your financial advisor.
First Consideration: Interest Rates
The interest rate you pay on a Canada or Provincial student loan can differ, sometimes substantially, from current market interest rates on a professional Line of Credit. It isn’t an apples-to-apples comparison though, since interest paid on student loans is tax deductible.
To assess the difference, you’ll want to make sure your financial advisor is getting you a) the best rate on a line of credit, b) making an accurate calculation re: what you’re paying between all your current student loans, and c) making any necessary adjustments given the tax deductions you receive on student loan repayments.
Second Consideration: Loan Forgiveness
Another perk of student loans, in addition to the paid interest being tax deductible, is that they are also eligible for loan forgiveness. If you’ve chosen to work in an “underserved rural or remote community”, this will likely play a role in deciding between continuing with your student loans or changing over. To find out if your postal code (of the community you work in) is eligible, you can check here.
If you find that you are eligible, given all the requirements, that will play a role in calculating which loan option is better.
The Bottom Line
Interest rates change all the time. As do working arrangements. And so the right option for you will depend, to a large degree, on where you are working and the macro-economic environment driving said interest rates.
If you’d rather not figure that out yourself, I’m here to help.
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