# 23 years old. Advice on student loan



## GreedIsGood (Dec 4, 2013)

Hi there,

I'm 23 years old and I need some advice on what to do with my money. I graduated from university in April 2012 and have been working ever since.


20k cash
~$15k TFSA, which means ~$10k left in contribution room
$6.5k RSP in mutual funds
$20k OSAP student loan, currently at 5.5% (prime + 2.5%). Some say it's a good rate considering it's an unsecured loan.

So I'm wondering if I should use all my cash to pay off my loan or would be be better to invest in stocks and bonds? Is it reasonable to assume that a portfolio can make more than 5.5%? My job is on contract until October 2014, making $43k and since I live with my parents I don't see any emergencies coming up.

My goal eventually would be to purchase a condo, which is what the RSP is for (first-time home buyer's plan).

Any advice would be greatly appreciated.


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## Latito (Nov 18, 2013)

Pay off your student loan. The big advantage you have here is a *guaranteed *rate of return. Given the relatively short time frame (guessing 3-10 years, probably on the lower end?) for wanting to purchase a condo, the risk and volatility incurred with investing is just too high for a chance at slightly higher returns. Take the 5.5% guaranteed.


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## the-royal-mail (Dec 11, 2009)

Well, I don't think a condo purchase should be in your mind at this point. Prices are inflated and condo supply is very high.

To echo the above, clear off your debts ASAP. Secondly, due to your age I don't think you should be locking in too much money into RRSPs at this point. That takes away the mobility of your money at a stage of your life when you need cash to get established. You are in a period of flux (still living with parents, contract job for another year) and so your priority should be on paying off debt and saving money (max out your TFSA and start high interest savings account). Investing and RE are longer term things.


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## Guban (Jul 5, 2011)

Add me to the pay off loan camp. It is a safe thing to do, and I am assuming that you are not a very aggressive investor (considering you are thinking of bond investments). An investor certainly can do better than 5.5%, and if you are aggressive and have a high tolerance for risk, not paying off your debt and investing your cash would be understandable.

It sounds like the condo is not in the near future, so you can always contribute to your RRSP down the road in preparation for the home buyer's plan.


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## Toronto.gal (Jan 8, 2010)

Greed is not good!


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## peterk (May 16, 2010)

Most of the friends and family in my similar recent grad cohort fall into 2 categories.

- Owing 10-40k in student loans, no money on hand, "feel poor" because of this debt, and as a result spend money foolishly because of this "poor person" mindset. I am convinced that since so many young people are living paycheque to paycheque that they are stressed out and NEED to shop to somehow feel like they have control of their money.

- Owing 10-40k in student loans, keeping 5-20k on hand, and trying to "balance" their saving and student loan payments. Sometime there is talk of investing and "making more than the interest on student loans" but for most it's just keeping money in a savings account making 0-2% interest and paying 5.5% back to loans. While this method is mathematically foolish, I see the value in it being that with all the cash saved or invested, the person doesn't "feel poor", and as a result overall wiser purchases are made with less spending than case 1 person.

My recommendation: Send all but 1-3k towards paying down debt. Keeping a cash buffer is important for emergencies, and, more imporantly, for _feeling_ like you're in control of you finances, and freeing up your mind to think about finances in a mature way, not a stressful scramble-to-keep-up with-the-bills way.

Since you have way more money than debt, GreedIsGood, I think you should pay off the entire loan right now and then focus your saving/investing with the leftovers and all the new money from your job.


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## Butters (Apr 20, 2012)

Don't forget the money you make is taxed...
So that 5.5% is really much higher!
Pay off the debt


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## MoneyGal (Apr 24, 2009)

The money you make in a registered account, whether TFSA or RRSP, is not taxed.

The effective rate on the student loan (assuming it is a government student loan, not a "private" loan of some kind) is not 5.5%, because the interest paid gives rise to a tax credit of 15%. The after-tax rate is [5.5% face rate] * (100% -15%)] = [5.5% * 85%] = 4.675%


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## GreedIsGood (Dec 4, 2013)

*Thanks for all the responses*

I definitely will pay off all my loan thanks to the unanimous decision on here. I'm frugal when it comes to spending money and just wondering the best way to spend it.

Would you guys recommend renting a place? It's more of a social aspect as well. The thought of living with my parents at 23 y/o is not really appealing after having lived away at university. I wouldn't mind spending a bit of cash.


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## wendi1 (Oct 2, 2013)

Depends.

Costs lots of money to rent - but I agree, there's a hit to your quality of life when you are living with your parents.

This is where you get to do some research, come up with a budget, balance the pros and cons (commute time vs. laundry room). All good things to get into the habit of doing when making financial decisions.

I wouldn't deprive you of the pleasure for a minute!


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## the-royal-mail (Dec 11, 2009)

Of *course* you you should rent a place. 

As I said above, owning property is a very bad move for you right now. You have to live somewhere. Time to leave the nest. 

I am not sure by what you meant about the social aspect. Be very careful to keep quiet when living in apartments, it is not a good idea to have tons of people coming and going and making noise, music etc. Unless you meant something else by social aspect.

I also do not recommend fussing with room mates. Get your own place, then you can come and go as you please.


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## GreedIsGood (Dec 4, 2013)

the-royal-mail said:


> I am not sure by what you meant about the social aspect. Be very careful to keep quiet when living in apartments, it is not a good idea to have tons of people coming and going and making noise, music etc. Unless you meant something else by social aspect.
> 
> I also do not recommend fussing with room mates. Get your own place, then you can come and go as you please.


I guess social aspect is not the right phrase. Don't know what to call it. I don't mean partying and stuff like that but just to be independent and freeeeeee, having friends over whenever I want, etc. I just feel like I shouldn't be freeloading off my parents anymore. I agree with the roommate situation. Most of the time, you're thinking they're just not as clean as you. I'm not a neat freak but throw your own garbage out.

Anyways, I'm glad everyone on this board agrees that I should pay off my loan first. Thanks


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## Taraz (Nov 24, 2013)

Not just a guaranteed 5.5%, but a *TAX FREE* guaranteed return (since you're paying the loan in after-tax dollars). Depending on your tax rate, that could be a pretty sweet no-risk return. 



Guban said:


> Add me to the pay off loan camp. It is a safe thing to do, and I am assuming that you are not a very aggressive investor (considering you are thinking of bond investments). An investor certainly can do better than 5.5%, and if you are aggressive and have a high tolerance for risk, not paying off your debt and investing your cash would be understandable.
> 
> It sounds like the condo is not in the near future, so you can always contribute to your RRSP down the road in preparation for the home buyer's plan.


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## Butters (Apr 20, 2012)

If you have no problems with your parents, stay as long as you can!

Of course you will need to slowly help out with rent at moms. 

But 200 bucks at moms is better than a crummy apartment at 800 a month

On e you leave home your expenses rise like crazy

And it's much harder to save

I had 80k at age 24 when I moved out. 
Wish I had stayed longer, I would have a net worth of 200k now instead of 120k age 26

If you have serious issues at home, renting is better than owning first starting out
You will learn what you like, what you want in a house etc

1 year renting will not lower your net worth rather than buying a house

When you do buy, use 20-25k rrsp in home buyers plan
And make sure you pay 20% down

No need to rush it!


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## GreedIsGood (Dec 4, 2013)

SheaButters said:


> But 200 bucks at moms is better than a crummy apartment at 800 a month
> 
> On e you leave home your expenses rise like crazy
> 
> ...


My relationship with my parents is good. Nothing bad at all. I didn't mean to imply that. What I meant was 20s is your time to explore, to learn and to know what you like and what you don't like, right? For example, I'm not going to say to a girl "Want to come over to my parents' place?" Not just girls but anything really. I have the freedom to do whatever I want, as long as I keep my finances in order. I guess that's what I mean by saying "social aspect" (instead of financial) in my earlier post.


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## none (Jan 15, 2013)

Stay at home and spring for the hotel. Cheaper and much more romantic (in a sexy way).


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## Crusher (Sep 15, 2013)

GreedIsGood said:


> My relationship with my parents is good. Nothing bad at all. I didn't mean to imply that. What I meant was 20s is your time to explore, to learn and to know what you like and what you don't like, right? For example, I'm not going to say to a girl "Want to come over to my parents' place?" Not just girls but anything really. I have the freedom to do whatever I want, as long as I keep my finances in order. I guess that's what I mean by saying "social aspect" (instead of financial) in my earlier post.


Yeah. I don't know you and your family, but at 23 it's past time to move out. Find yourself a nice apartment to rent and some nice girlfriends. Enjoy life. Be money smart but not to the point of being life stupid.


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## Longwinston (Oct 20, 2013)

I'd increase my payments to the student loan but I wouldn't cash out my investments to pay it off. It's a tax advantaged debt and having some investments at this young stage of your life will make the compounding that much more impressive. Assuming a buy and hold methodology. Good luck, sounds like you are getting off on the right foot


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## My Own Advisor (Sep 24, 2012)

Funny none.

Kill the student loan now.


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## Butters (Apr 20, 2012)

Haha none's post!

Greed I wasnt referring to anything just added what I think

A true girlfriend would have no problem stopping in at mom's house, if the other girls don't want to, they aren't worth it!
Girls just cost money anyways, *just kidding, or am i?


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## GreedIsGood (Dec 4, 2013)

The loan is an OSAP loan. I just called them and paid it off in full. All 20k. I still have 6.5k in RRSP and 15k in TFSA. I guess my next step will be to max out the TFSA. What do you guys use the TFSA money for? Emergencies or buying something that you really like? When is it a good time to withdraw?


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## Eclectic12 (Oct 20, 2010)

GreedIsGood said:


> The loan is an OSAP loan. I just called them and paid it off in full. All 20k. I still have 6.5k in RRSP and 15k in TFSA. I guess my next step will be to max out the TFSA. What do you guys use the TFSA money for? Emergencies or buying something that you really like?


I use one TFSA to hold some emergency cash and a second for investing. 

I use regular cash flow (i.e. not TFSA money) for buying things I like. Or if it benefits me - a CC until the payment date hits & then regular cash.




GreedIsGood said:


> When is it a good time to withdraw?


I like to keep the earnings tax free as long as possible ... so the earliest I've withdrawn is Oct to pay down the mortgage. Now that I don't have a deadline for withdrawing, I like to withdraw around Dec 27th so that if I have investments and/or cash to re-contribute - the withdrawal amount is available as contribution room within a few days.


Cheers


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## alingva (Aug 17, 2013)

This is your (as a student) picture http://www.moneyinside.ca/blog/finance/canadian_student_debt_summarized_in_one_picture_b-21.html Why your interest on a stu loan is 5.5%? Banks offer P+1% for a student line of credit


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## GreedIsGood (Dec 4, 2013)

alingva said:


> This is your (as a student) picture http://www.moneyinside.ca/blog/finance/canadian_student_debt_summarized_in_one_picture_b-21.html Why your interest on a stu loan is 5.5%? Banks offer P+1% for a student line of credit


Where does it say banks offer P+1%? Do you have to pay back all of it?

With OSAP, I borrowed 10k-11k each year but the max you have to pay back is ~$7k. So for four years, I borrowed $41k in total but paid back $29k.

Anyways, I just paid back the last of my debt. Any money I earn now will mostly go into savings and maybe splurge on myself here and there!


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## Ag Driver (Dec 13, 2012)

GreedIsGood said:


> The loan is an OSAP loan. I just called them and paid it off in full. All 20k. I still have 6.5k in RRSP and 15k in TFSA. I guess my next step will be to max out the TFSA. What do you guys use the TFSA money for? Emergencies or buying something that you really like? When is it a good time to withdraw?.


First if all, congrats on paying off the loan! 

My plan is to max the TFSA first. Then move into the RRSP territory. At this point I use my TFSA for divided stock, e-series funds, and HISA for the emergency fund. I plan on shifting the HISA into a GIG ladder for my emergency fund in due time.


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## alingva (Aug 17, 2013)

GreedIsGood said:


> Where does it say banks offer P+1%? Do you have to pay back all of it?


 If it is a stu line of credit it is P+1 or P+0.5 for some professions


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