I am aware that when you graduate and start repaying loans, interests are accrued. However, if you repay loans in school, will that affect the amount of funds you receive from OSAP in the following year? In other words, which is better: repaying while in school or wait till graduation?

Thank you!

I could be wrong but your OSAP money is interest free during school. After which:
-For 6 months: interest only accumulates on the federal portion of the loan
-After 6 months: interest accumulates on everything

As such you could view it from two perspectives.
1) You will get more money if you plop everything you could pay back into a tax free savings account or invest it (risk involved)
2) Pay it back thereby preventing you from spending money on frivolous things you dont need BUT you lose out on the interest you could get by holding on to it.

Originally Posted by qwerty91

I could be wrong but your OSAP money is interest free during school. After which:
-For 6 months: interest only accumulates on the federal portion of the loan
-After 6 months: interest accumulates on everything

As such you could view it from two perspectives.
1) You will get more money if you plop everything you could pay back into a tax free savings account or invest it (risk involved)
2) Pay it back thereby preventing you from spending money on frivolous things you dont need BUT you lose out on the interest you could get by holding on to it.

This is a very good question and i've been in the repaying dilemma just like the OP. He's right on everything he said, but the one thing I would say is to compare the interest rates on a TFSA (perhaps one of the safest ways to save and accumulate interest), and the interest rate on the loan payments. I know you have the option to choose between fixed and flexible interest rate on either the federal portion or provincial one, but i cant remember which one. What you choose here can really have a significant effect on your payments.

In general, you will most likely accumulate more interest on your loan then you will with a TFSA (since the principal on your loan in the case for most students will most likely be higher than whatever you have in the bank). I would say if this is the case, try and knock down that principal to reduce your interest payments. But if you're in a rare situation where you have a lot in the bank already, you have more of a luxury to save and then pay back.

Random tidbit of information, as I see people using this term rather loosely everywhere:

A TFSA is an registered investment account, and doesn't necessarily mean a guaranteed principle or interest rate. Much like an RRSP, money that you have in a TFSA can actually be invested in stocks, bonds, mutual funds, GICs etc.

It just so happens that the majority of people, especially students, that have a TFSA only choose to place it in a savings account in a consumer bank that offers a guaranteed (but low) interest rate. The guaranteed principle / interest comes from the bank's savings account that they default people's money into when they open a TFSA, not the TFSA itself.

An interesting read: http://business.financialpos t.com/2013/06/11/you-want-to-talk-value-investing-try-to-top-this-guys-tfsa/?__lsa=4c8a-bfe9

This guy made a ton of money in his TFSA by investing in penny stocks. No way you can get those kind of gains in a guaranteed interest savings account