Student lines of credit

From: Financial Consumer Agency of Canada

How student lines of credit work

A line of credit is a type of loan that lets you borrow money repeatedly up to a pre-set limit. You can borrow money from a line of credit, pay it back and then borrow again, up to your credit limit.

A student line of credit is a product for students that helps them pay for expenses related to post-secondary education, like tuition or books. It can also be used to help cover everyday expenses, like food and transportation.

With a line of credit, you only have to pay back the money you borrow. You also only have to pay interest on the money that you borrow. For example, suppose your line of credit has a $10,000 limit. You borrow $3,000. This means you only have to pay back what you borrow.

With a loan, you receive a set amount of money and have to pay it all back. You also have to pay interest on the total amount that you receive.

The interest rates on student lines of credit may be lower than the rates offered on government student loans. But the difference is that you’ll have to start paying interest as soon as you borrow money from a student line of credit. With a government student loan, you’ll only start paying interest once you finish your program or leave school.

Applying for a student line of credit

You may need somebody, like a parent, to co-sign your line of credit application. This person will also be responsible for the debt if you can’t pay it back.

Your financial institution will set the maximum amount of money you’ll be able to borrow. The amount you can borrow may depend on the program you’re studying and the school or academic institution offering the program. It may also depend on your living expenses, credit history and ability to repay the money you borrow.

You can apply for a student line of credit at any time. Usually, you apply online, over the phone or in person. Contact your financial institution to find out how to apply for a student line of credit.

You usually need to provide proof that you’re either a full-time or part-time student at a recognized Canadian post-secondary institution to be eligible for a student line of credit.

Insurance on a student line of credit

Your lender may offer you optional credit protection insurance on your student line of credit. This is a type of credit and loan insurance. It may help cover your loan payments in cases of serious illness, accident, death or if you lose your job.

You don’t have to take loan insurance to be approved for a student line of credit. The lender can't insist that you buy insurance.

Not all illnesses, accidents, deaths or periods of unemployment will be covered by loan insurance on a student line of credit. For example, to be eligible for a job loss benefit, there's typically a requirement that you've been employed with the same employer for a certain number of months and are eligible for employment insurance. As a student, you may not need job loss insurance coverage on your student line of credit.

Make sure that the insurance meets your needs in terms of protection. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you. Take the time to describe your financial situation to ensure you get the right product. Don't hesitate to ask questions and make sure you understand the insurance product you have or want.

Federally regulated lenders, such as banks, can’t add optional loan insurance without your permission. If optional loan insurance has been added to your student loan without your permission, contact the Financial Consumer Agency of Canada to file a complaint. You should ask your lender to remove the optional services and reverse the changes.

Learn more about giving express consent for optional products and services.

Learn more about credit and loan insurance.

Accessing money from your student line of credit

You should be able to access the available credit in your student line of credit soon after:

you’ve signed all of the necessary documents
your application is approved

You can usually access the available credit from your student line of credit at:

a branch of your financial institution
an ATM
through online, mobile or telephone banking

Some lines of credit will also let you access the money by writing a cheque.

Financial institutions each have their own terms and conditions for the lines of credit that they offer. Speak with your financial institution for more information about the student borrowing options they offer.

Borrow only as much money as you need to cover your needs while studying. Think about whether you’ll be able to make at least the interest payments while you’re studying. Also think about whether you’ll be able to repay the money that you borrow from a line of credit when you graduate.

Paying back your student line of credit

You must pay at least the interest, even while you're studying. Once you finish school, most financial institutions allow you to continue to pay only the interest on your line of credit for a grace period of 6 to 12 months after you graduate.

After that period, you must start to pay back both the money you borrowed (the principal) and interest. You'll continue to pay interest until you repay your balance. You can start paying back the money you owe at any time, even while you're still studying.

Speak with your financial institution to find out their student line of credit repayment terms and conditions.

If you have a Canada Student Loan instead of a student line of credit with a financial institution, the repayment terms are different. For a student loan, you’ll have a 6-month non-repayment period after you graduate. During that period, you won’t have to make payments and you won’t be charged interest on your loan.

Learn more about paying back your student debt.

Comparing student lines of credit with government student loans

There are pros and cons to both government student loans and student lines of credit. With a line of credit, you’ll have to pay back the money that you withdrew from your available credit. You may also get more money from a line of credit than a government student loan.

However, the money you borrow using a student line of credit isn’t eligible for the Repayment Assistance Plan. This plan helps students who are having trouble paying back their government student loan.

Learn more about government student loans.

Before borrowing from a student line of credit

You may be able to pay for your education without having to borrow any money at all. For example, you may be able to use your savings or grants, bursaries or scholarships. A part-time job or co-op program can also help you cover the costs of education.

Find out if you're eligible for scholarships, bursaries and grants from the Government of Canada:

The provinces and territories also offer grant and bursary programs for their permanent residents. You may still be eligible for provincial or territorial grants or bursaries even if you don’t have a Canada Student Loan.

To learn about grant and bursary programs in your province or territory, check with your provincial or territorial student financial assistance office.

Find your provincial or territorial student financial assistance office.

Know your rights before you borrow

When you get a loan or line of credit with a federally regulated financial institution like a bank, you have the right to receive key details. These details will appear in an information box on your credit agreement or as part of a separate document provided after you’re approved.

Know your rights when you get a line of credit.

Find a sample credit agreement for a line of credit.

If the financial institution didn’t provide you with these key details, you may file a complaint through its complaint-handling process.

Learn how to file a complaint with your financial institution.

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