If you’re an Ontario resident considering financing for post-secondary education, chances are you’ve heard of the Ontario Student Assistance Program (OSAP). OSAP is a financial aid program that helps eligible students pay for post-secondary studies at qualified colleges or universities. It comes in two forms: grants and loans.
Learning how your OSAP loan could impact your future financial plans will help you make informed decisions about getting, keeping, or paying off your OSAP loans.
Eligible students may receive an OSAP loan, an OSAP grant, and sometimes a combination of both. OSAP loans must be paid back. OSAP grants do not require repayment unless you’ve received an overpayment.
Ontario residents who are Canadian citizens, permanent residents, and who meet the OSAP eligibility requirements may qualify, depending on your personal financial and credit situation and your academic progress. Your Registered Education Savings Plan (RESP) balance does not affect OSAP qualification. For more information on qualifying for OSAP, visit the Ontario Assistance Student Program website.
Usually, you don’t have to make OSAP payments while you’re in school. However, about six months after your study period finishes, you will begin making OSAP loan payments to the National Student Loans Service Centre. It’s a good idea to start paying off your OSAP loan as soon as you can. Currently, interest on OSAP loans is calculated at the prime rate +1%. A portion of your student loan may be in the form of a Canadian student loan, with an interest rate of prime +2.5%. The prime rate is determined by the Bank of Canada.
OSAP payments are amortized over 9½ years, the time it typically takes to pay off a student loan. You can arrange to have your payments withdrawn automatically from your bank account. It’s also possible to make lump sum additional payments (which get applied directly to the principal loan amount, thereby reducing the interest owed in the long run). Depending on your situation, you may qualify to lengthen the amortization to 14½ years, which reduces your monthly payments, but increases the interest you’ll pay in the long-run. For more information, visit Pay Back OSAP.
Your OSAP loan payment activity is reported to the Canadian credit reporting agencies, becomes part of your credit history, and therefore impacts your credit score. Your credit score influences the approval and terms of other credit you may wish to obtain, such as car loans and mortgages. If you don’t repay your OSAP, your loan could be forwarded to a collection agency. As a result, you could become ineligible for future OSAP loans, and your income tax and HST tax refund could be withheld. In addition, interest continues to accrue on the unpaid loan amount.
Some graduates choose to make only the minimum payment required on their OSAP loans, even if they can afford to pay it off. The non-refundable tax credit, competitive interest rates, and other financial goals such as saving for a down-payment or paying off higher-interest debt make this option attractive. Others prefer to get it over with and prioritize paying off their OSAP loans.
We can help you decide if a student loan is the right option for you. Book an appointment today with your local Kawartha Credit Union branch, and let’s get your financial future off to a healthy start.