When the federal government set the federal student loan interest rate at zero and provincial interest rates were set at a low 3.5% in Ontario, Chantelle Gubert decided it was the perfect opportunity. to divert more money to its long-term savings.
“What I’ve realized is that…I have enough investment that if my investment is doing better than about 4.5% right now, it actually makes more sense in the long run for me to invest in it,” said Gubert, who is in her 20s and lives and works in downtown Toronto.
She is now adding more funds each month to a tax-free savings account, after trying to pay off as much of her loan as possible through a second job in the restaurant industry before the pandemic.
“The student loan is going to be there forever and the interest is tax deductible, but you don’t always have to start your nest egg,” she said.
Gubert’s new strategy comes as the federal government announced that the interest rate on the federal portion of student loans will be frozen at 0% until 2023, which some financial planners say could be an opportunity for young Canadians to consider diverting money to long-term loans. term savings plans for things like retirement.
Jason Heath, chief executive of fee-only financial planning firm Objective Financial Partners, said Canadians may see the federal government’s announcement as an opportunity to invest, but they should be confident their investments will perform. .
“The biggest thing that worries me right now is that there is a lot of volatility, and things like cryptocurrencies and GameStop stocks that people think they can kill,” said said Heath, who is based in Markham, Ont.
“If someone takes a risk with money they would otherwise have invested in paying off their student debt, they might regret it in the future and in years to come.”
Heath said diverting money from loan repayments to personal savings would make sense for stable investments like a group savings plan or a program to match pensions with a workplace.
He said the low interest rate could also help people who need cash to pay off other high-interest debt they might face, such as credit card debt.
One of the proposals in the 2021 federal budget states that Canadians will only be required to repay their student loans if they earn more than $40,000 a year, an increase from the previous threshold of $25,000. Heath said this could be another opportunity for people to deal with high-interest debt first.
Ian Collings, a paid financial planner based in Vancouver, agreed that using low interest rates for student loans to leverage investments could be a good way to move your financial life forward.
But he said people should be aware that the rosy picture of student loan repayment could change down the road.
“It’s possible to get used to not having that bill and not having to pay off the debt,” Collings warned.
“When 2023 or 2024 rolls around there will be no continuation of this program, having this bill reappear might be a surprise.”
Back in Toronto, Gubert said her plan would require her to watch her investments and she would watch if the provincial interest rate on her student loan changed.
“It’s just trying to predict what my long-term earnings will be, but interest rates will also be difficult to predict,” said Gubert, who said the expected post-vaccination economic boom could change his situation.
“It’s a bit of a balancing act…I’m going to have to do my own due diligence.”
This report from The Canadian Press was first published on April 27, 2021.
