What You Need to Know About Student Lines of Credit in Canada

Paying for post-secondary education can be challenging, especially when savings and part-time work aren’t enough to cover tuition and living costs. In those situations, a student line of credit can help bridge the gap.

“Financing an education often involves balancing multiple sources of funding,” says Jennifer Zanatta, Senior Director of Personal Lending at Royal Bank of Canada. “When there’s a shortfall, we’ve commonly seen a student line of credit as one option to consider. Speaking with an advisor can help students understand both the opportunities and responsibilities that come with banking products.”

What is a student line of credit?

Think of a student line of credit as a flexible pool of money you can use when you need it. Unlike a traditional loan, where you get a lump sum of cash all at once, a line of credit gives you a previously approved credit  limit (e.g. $5,000) that stays in the background.

You only take out what you actually need, whether that’s for this semester’s books or next month’s rent, and you only pay interest on the amount you’ve actually used. It’s there if you need it, but it doesn’t cost you if you don’t use it, and as you pay back what you’ve borrowed, your available balance up to your credit limit becomes available again.

How does a student line of credit work?

With a student line of credit, you apply for a set amount of funds from RBC that you agree to repay over time. It’s a flexible option to help you cover ongoing or unexpected expenses while you’re at school. Here’s how it works:

• Credit limit: The maximum amount you can borrow

• Interest: Charged only on the amount you use

• Flexible access: Borrow, repay, and borrow again within your limit

• Payments while in school: Usually interest-only

What is the difference between a student loan and a student line of credit in Canada?

In Canada, student loans and student lines of credit serve different purposes. Student loans are government-funded, whereas student lines of credit are offered by banks. Most students use both: government loans first, then a line of credit to fill in gaps.

Student Loan vs Student Line of Credit (While in School)

How to apply for a student line of credit?

To apply for a student line of credit, you’ll need to provide:

• Proof of enrollment

• Estimated education costs

• List of financial resources (RESPs, scholarships, etc.)

Is a co-applicant needed for a line of credit?

Yes, you might need a co-applicant (also called co-signer in many cases) if you have limited or no credit history or if you are studying outside of Canada. If you are an international student studying in Canada, the co-applicant has to be a Canadian citizen or permanent resident.

If you have a co-applicant, they will also be responsible for repayment.

Understanding co-applicants: What you need to know

A co-applicant acts like a financial partner in sharing legal responsibility for a debt, promising to repay the full amount if the primary borrower can’t. Many Canadian banks require a co-applicant for student lines of credit, especially when you don’t yet have an established credit record.

Who can be your co-applicant?

Your co-applicant needs to be a Canadian resident aged 18 or older with strong financial standing. Banks look for a good credit score, along with stable income and a clean credit history. This means no recent bankruptcies or major late payments.

Depending on the institution, they’ll be asked to provide recent pay stubs, T4 slips from the past two years or a letter of employment to prove they can repay the loan if needed.

How does this affect your co-applicant’s credit?

The loan appears on the co-applicant’s credit report right away, as if they borrowed the money themselves. Making on-time payments helps build your credit score while maintaining or improving your co-applicant’s score.

The loan also increases their debt-to-income ratio, which could affect their ability to get approved for their own mortgage, car loan or credit card in the future.

Credit utilization also plays a part in how it can impact their finances. If their utilization ratio is above 35 per cent of available credit, their score could lower, , even before anyone misses a payment. Any late or missed payments you make will damage their credit score as much as yours. That’s the risk they’re taking on.

Co-applicant Impact at a Glance

What if you can’t find a co-applicant?

If you can’t find a co-applicant, you still have options including government aid programs like the Canada Student loans and provincial options like OSAP, which offer interest-free loans and grants that don’t require a co-applicant.

What are the borrowing limits for a student line of credit?

Borrowing limits are determined by RBC based on your program of study, eligibility and financial needs:

• Undergraduate, graduate, college, or trade school: flexible limits starting at $5,000

• Professional programs (e.g., law, MBA, engineering): higher limits based on the program of study

• Medical and dental programs: limits up to $400,000 based on program of study and associated costs

What can a student line of credit be used for?

You can use your student line of credit for a variety of needs, including:

• Tuition and fees

• Textbooks and supplies

• Rent and living expenses

• Transportation and travel

• Unexpected daily living expenses

Keep in mind, you’ll be asked to estimate the costs as part of your application. Use RBC’s Student Budget Calculator to estimate your individual needs and to get a better sense of your financial situation for the upcoming school year.

What’s the grace period for student loans, and when do repayments start?

While you’re in school, you’re typically required to make interest-only payments. This helps keep your monthly payments lower while you’re studying.

Once you’ve graduated, we give you a 24-month grace period before you have to start paying back the principal (what you borrowed) and the interest. This gives you two years to get settled into your career before the full payments start. You can repay early at any time without penalty. Paying down your balance earlier can help reduce total borrowing costs.

Note that the 24-month grace period is not applicable for students enrolled in medical or dental programs. The medical and dental line of credit is lifetime revolving and would need to be repaid upon certain circumstances.

What are the interest rates on RBC student lines of credit?

We offer competitive, variable interest rates that fluctuate as the RBC Prime Rate changes. The interest rate is usually lower than credit cards, but higher than government loans.

What to consider before applying for a student line of credit

A student line of credit gives you flexibility, but it comes with responsibility. Here are some things to keep in mind:

• A good rule of thumb is to only borrow what you need

• One option is to use your government loan first and then use your line of credit as a back up

• Consider adding repayments to your monthly budgets

• Make small payments early if you can

How to learn more about a student line of credit

Many high school graduates entering university have limited experience managing their own finances. When looking at offers for a student line of credit, many may ask themselves if there’s a catch. That skepticism isn’t something to overcome or ignore – it’s a strength. It means they’re  thinking critically about their financial future and line of credit options.

“It’s good to research beforehand but having a conversation with someone can also help answer questions you may not even realize you have,” says Jessica Lee, Senior Director of the Youth and Young Adult Segment at Royal Bank of Canada. “Sometimes students feel intimidated asking those questions or they worry about saying the wrong thing but having that conversation can help clarify what your options are.”

With 21 to 24 per cent of young borrowers influenced by Reddit and online forums, financial literacy is more crucial than ever. That’s why consulting an RBC financial advisor should be a top priority for students.

Questions you should always ask before applying for a Student LOC

Keep in mind that there are no wrong questions as you’re trying to get the information you need to make the right choice for you.

About Costs:

• What’s the interest rate, and is it fixed or variable?

• When does interest start? Do I pay interest while I’m in school?

• What happens if I miss a payment?

About Flexibility:

• Can I borrow as I need it, or is it a one-time amount?

• Can I pay it back faster without penalties?

• What’s my grace period after graduation?

• What happens if I take a break from school or switch programs?

About Requirements:

• Do I need a co-signer? What does that mean for them?

• What credit score or credit history do I need?

• What documentation do I need to apply?

• How long does approval take?

About the Fine Print:

• Are there any conditions or requirements to maintain the line of credit?

• What can I use the money for? Are there restrictions?

• How will this affect my credit score?

• What are my options if I run into financial trouble?

Tips on qualifying for a student line of credit in Canada

As a student, there are ways to improve your odds of qualifying for a line of credit from whichever institution you decide to apply to. Here are some tips to maximize the chances of improving your financial situation as you earn your degree.

1. Start your application early and meet key deadlines
   Getting approved for a student line of credit isn’t just about meeting the basic requirements. You’ll want to send your application before the deadline to give yourself breathing room for approval and activation in the subsequent month(s). Starting early means you can gather the appropriate documents without rushing and address any potential roadblocks before school bills arrive.

2. Understand your program’s qualification requirements
   Your field of study directly affects your credit limit and interest rate. RBC offers three different line of credit options, aptly named “royal credit line”: for undergraduate and graduate students (starting at $5,000), professional studies programs ($5,000 to $140,000) and medical or dental programs (up to $400,000). Knowing which category you fall into helps set realistic expectations and allows you to prepare the correct documentation for your program.

3. Have your documentation ready before applying
   Preparation is the key to building confidence and having a strong application. Have your proof of enrollment ready, along with a detailed budget that demonstrates your need for the line of credit.

   If you’re working while studying, gather your last two years of T4 slips or recent employment letter and pay stub. You’ll also need your last two years of employment and education history with complete details like position, location, address and start dates.

4. Build your credit profile before applying
   Start building your credit early by making every payment on time, keeping your balances low and avoiding maxing out your limits. You can do so by setting up autopay or setting monthly reminders of upcoming deadlines.

5. Consider finding a qualified co-applicant
   As detailed earlier, a co-applicant with dependable income and credit can boost your chances of approval for a line of credit and should be seriously considered if your credit history is limited or you’re studying outside of Canada.

6. Keep your accounts in good standing
   Your line of credit account must remain in good standing throughout the process. This means no missed payments, delinquent status or account holds. It’ll demonstrate your ability to be responsible with a line of credit. Think of it as your ongoing commitment to financial health that extends from application through graduation and on.

How to calculate your student loan repayment timeline

Now that you’ve been approved for a student line of credit, you should think about how you’ll be able to manage this responsibility. Keep in mind that the amortization timeline depends on the balance at the end of the grace period.

Students have the flexibility to pre-pay without a fee, however their blended payment (post-grace period) will be automatically calculated and debited to their Personal Deposit Account (PDA). .

Setting up a repayment timeline can make things easier for you, whether or not you struggle with finances.

• Start with what you owe: Your repayment timeline begins with your total balance. Add up your student line of credit balance plus any government student loans you’re carrying.

• Know your interest rate: This will provide a clearer picture of where you stand with your debts.

• Understand your grace period: You have breathing room after graduation as you’ll generally get a grace period after finishing school. During this time, you pay only interest, not principal, giving you space to settle into your career.

• Use RBC’s tools to help do the math for you: Head to RBC’s Loan Calculator and plug in your balance, interest rate, and desired monthly payment to see exactly when you’ll be debt-free.

FAQ