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The Manipulation of Student Loans

by Archives March 3, 2009

Government loans and bursaries are important and valuable tools that Canadian students can access. But it’s not all free money – be careful how you use your loans.
Though the interest is tax deductible, the loan has to be paid back in monthly installments, which can sometimes take up to 20 years. Don’t let the idea of debt scare you off, though. Some people have made livings off debt. Donald Trump, for example, is a billionaire because he “owns” billions of dollars worth of assets all under bank financing.
Considering the limited amount of debt allotted to young adults, an education is surely worthy of financing. But you can use student loans in creative ways and put the money towards something other than just tuition and books.
If you live on your own, you could be getting up to $40,000 in loans over four years. There is a whole culture of students who don’t need loans, but still apply. Instead of spending the money, these students invest it and make interest off the loans until the time comes to pay it back. When the government says it’s time to pay back those loans, you’re ready to hand back the entire principle and keep the interest. Minus the money from the bursaries, of course.
The Millennium Bursary money if taken alone over four years and invested at seven per cent, could grab you almost $180,000 by the time you are ready to retire in your early sixties.
Be wary though: These kinds of investments are very high risk. If the market collapses, you will be on the hook for paying the government back. Many students today are realizing that fact very quickly and are having to adjust their course.
For instance, when you start paying off your loan, you can write off the interest since interest paid on student loans is tax deductable. With that in mind, if you keep the whole $40,000 in student loans in one investment account and pay off the loan with your income instead of using your income to save for retirement, you can net over $400,000 within 35 years.
Although this kind of thing is not exactly in the spirit of the Canadian student loans program, there are a lot of students out there doing this. If you get the urge to follow in their footsteps, just be careful of times like this – with a long market downturn on the horizon and only a few months left of school, you can be left out in the cold.

$40,000 Maximum Canada student loan, for students living on their own.

$180,000 Potential return if you invest the Millennium Bursary money until you are ready to retire.

$400,000 Potential return if you invest your entire student loan for 35 years.

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