This is something I have been pondering for a while. I am currently in my second year at University and my program comes with mandatory Co-op throughout the 4 years of study. I have completed 3 Co-op terms already and those have covered my expenses and tuition for each term at the university. I understand that not every Co-op will provide enough compensation every time but my parents are ready to support me where and when needed.

OSAP is a government program which funds students doing their post-secondary education in Ontario, more here. The loans are interests free until the student has completed his education. Then the interest rate is as follows:

On the provincial part of your OSAP loan, the rate is the prime rate of interest plus 1%. On the federal portion interest rate can be the prime rate of interest plus 2.5%.

So my question is, should I apply for OSAP and receive their funding and save what I earn from Co-op? Or is it better to not receive any OSAP funding?

  • 4
    This question might be a better fit for Personal Finance & Money SE. Jun 27 '13 at 0:28
  • I have a feeling that an accurate answer to this question would be too localized. In other words whether or not taking loans makes sense is very dependent the country/state in question.
    – posdef
    Jun 27 '13 at 11:37

I also considered doing this, though I didn't (more from sloth than anything else).

As I understand it, from other students in Ontario, you can pay back the entire OSAP loan in a lump sum at any time. Since the loan is interest free, a rational investor would take out the maximum amount allowed, put it in a risk free asset, and pay it back as late as possible, pocketing the interest.

Now, interest rates are low right now, and OSAP needs a lot of paper work. Being in debt can also be stressful for some people. If you are sure that you won't need any OSAP money, then perhaps the $100 or so you'd make per year in interest is not worth your time.

Also, note that borrowing money now, and then paying it back early will often cause the provincial government to lower your future OSAP payments - since you clearly didn't need the whole amount.

  • I also heard about the "use OSAP as a free investment" comment from a few people, but this was back in the DotCom era. Nowadays I'm not sure if you'd make your 1%/year back in a consistent time frame. (I didn't get OSAP either.)
    – Irwin
    Jun 26 '13 at 23:36

This is entirely up to you, but, having said that - a few things to consider:

  • How long would you have the OSAP debt for? Meaning, how long will it take you to pay it off? If you do get it, are their any penalties for early repayment? (just in case you get enough in your Co-op to repay).
  • Look at how much savings you have and how much, if any, debts you may already have, alongside all your other expenses - how much would you have to sacrifice to make the repayments.
  • You mention that your parents are ready to help if needed (very kind of them). Perhaps look at seeing how much you earn in your co-op - and seeing your parents to cover the balance.

I am in Australia, and, if eligible, we had HECS (now called FEE-HELP), where our tuition is paid by the government and we repay the balance as a portion of tax. It is a good system, but I am still paying mine off over a decade later.

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