Canadian Students

Student Debt, Even Paying It Off Isn’t the End

Published On October 6, 2013 | By Joseph (Ken) | Debt, Student

student debtWith Student Debt, Even Paying It Off Isn’t the End

“a new study from nonprofit group Demos uncovers a troubling phenomenon: All other things being equal, people who borrow money to go to college build about $208,000 less in wealth over the course of a lifetime than those who don’t — and this assumes the borrowers take advantage of the government’s often-overlooked income-based repayment plan.

“Over time, the gap between the two widens. “Nearly two-thirds of this loss ($134,000) comes from the lower retirement savings of the indebted household, while more than one-third ($70,000) comes from lower accumulated home equity,” the group says.”

The idea is that, if you have to borrow money to go to college or university, the cost of funding education through debt extends beyond the interest cost on the debt and includes the loss of use of the principal payments in early investing years.  The assumption is that if you didn’t have to make student loan payments, you could have (would have) instead invested those funds in retirement savings.  

No doubt this is true but what if you have student debt – should you pay down the student loan or invest?

Ask us: Pay off student debt or invest?

“The only way investing can be a better solution than paying down debt is if you expect to earn a higher rate of return on your investment than the interest rate you’re paying on your debt. If you’re investing for the long-term or contributing to an RRSP and getting tax refunds and tax deferral, the investing over debt repayment argument is more compelling.”

Paying off student debt and worried about not investing?

Retirement Savings by Age: How Do You Compare?

Ages 25-32: In this age group, savings was greatly clustered toward the lower ranges: 72% of all respondents 25-32 had $49,999 or less saved for retirement. The median amount saved in this age group was $12,000.
Ages 33-44: This age group tended to have savings in the middle ranges, with 62% of respondents in this age group having savings of between $10,000 and $249,999. The media amount saved was $61,000.”

The consequences of the significant increase in tuition fees (and the corresponding rise in student debt) is a lifelong financial burden on students that won’t be truly felt until those students are at retirement age.  

BC Students demand generational equity on tuition fees

“A recent report from the Canadian Centre for Policy Alternatives confirms that students in BC today are paying substantially more in tuition fees than students from the preceding generation.

“What was once the cost of a full year of education now only covers two 3-credit courses and few textbooks,” said Katie Marocchi, Chairperson of the Canadian Federation of Students-BC. “Even when inflationary costs are calculated, current students in BC are being charged twice the costs their parents once paid for the very same education.”

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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