Easy credit blamed for high post-secondary student debt
EDMONTON Post-secondary students in Alberta are continuing to accumulate debt at an “alarming rate” thanks in part to cheap lines of credit targeted at students and poor financial literacy, a consumer insolvency expert has warned.
Freida Richer, a licensed insolvency trustee with Grant Thornton Ltd., said social-value spenders and impulsive over-spenders are obviously at greater risk, but even students with some financial intelligence are facing challenges after they graduate.
The two biggest traps for students are credit cards and student lines of credit, Richer said.
Typically a student line of credit comes with an interest rate of prime plus one per cent and in many cases, students need only repay the interest while at university.
That’s great until the students hit the workforce.
“Student lines of credit are very attractive to students because it’s essentially a personal loan from the bank, but it is revolving credit,” she said.
In Alberta, a student who graduates from a four-year program can be saddled with up to $25,000 in consumer debt on top of an average of $23,000 in student loans.
“The trap is that some students think they will immediately jump into that ideal job with that ideal pay, and I think that’s a misconception,” she said. “That inability to get into that ideal job and ideal rate of pay means it is taking longer and becoming much more of a challenge for people, post-graduation, to pay down that debt.”
On average graduates are given 10 years to repay their student loans and can work with repayment-assistance programs to help pay down their debt.
But banks and other financial institutions are less forgiving.
“The student loan debt is manageable because it’s usually at a lower rate of interest,” she said.
“It’s the other debt that makes the burden heavier on that individual.”