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Paying the piper

|Written By Kelly Harris
Paying the piper

There are those who say the cost of going to law school in Canada is all-relative, meaning it’s best to find a rich relative and get him or her to pay your way. 

But not everyone has a spinster great aunt or wealthy uncle to pony up for their legal education. Instead students are left to beg for morsels from mommy and daddy’s deflated investment portfolios, or negotiate the sometimes overwhelming and complex world of student loans, lines of credit, bursaries, and RRSPs to pay their way.

The tactics employed to negotiate the financial maze differ depending on school, student, province, and bank.

“The school is really good at encouraging you to go to [the] Ontario student aid program, as far as the private bank stuff goes they don’t really tell you much, it is kind of up to you to figure it out,” says Arun Krishnamurti, a third-year law student and president of the Students’ Law Society at the University of Windsor. “The students are very, very helpful with each other. If there [are] financial issues, we have an office in law school, a broad student services office, that is the place you go to whenever you have any kind of issue.”

Other students are helpful in explaining bursaries and the availability of grants. Krishnamurti says the alumni offices at UWindsor have been working hard to add scholarships, and are intent on “spreading [scholarship money] around so the same people don’t get 35 different scholarships . . . because every little bit of money helps.”

Government student loans are an obvious option, but may not cover the full cost of law school. As tuition, books, and living expenses have risen through the years, so has the need for other avenues of student financing. Krishnamurti, a student transplant from Calgary to Windsor, says there are financial demands on students they may not anticipate, especially if they go to school far from home and want to travel during breaks. In these cases, private funding can provide an extra cushion.

During the past few years, banks in Canada have expanded professional student lines of credit programs with some allowing $80,000 or more to pay for law school and as a bridge through articling. These types of gateway loans help create credit customers for life, beyond the books and moots, all the way to mortgaging that first house or paying for a share of partnership. With the collapse of the credit markets, the obvious questions are whether or not these programs are still available, and harder to get.

Lawrence Engel, vice president of personal lending at TD Canada Trust, calls professional student loans an almost “recession-proof” product. He says the bank took action early after the credit crunch hit to inform those hoping to use TD’s services that they were still available. “Something we realized early on through 2009 is there is going to be a much bigger need to help students in a number of different spaces as a result of this,” he says. “We have been very conscious of that and to get out there and promote our student lending programs across the country, to make people aware of the fact that we were still out there supporting Canada’s future.”

TD has also started a Facebook site dedicated to student finance (facebook.com/tdmoneylounge) where students can discuss bank products and strategies to pay for their education. The bank, like most in Canada, also offers a wide range of services for students including low-fee accounts, credit cards, and even medical and dental plans.

Ray Baldelli, vice president of retail loans at Scotiabank, says it does not advertise the maximum amount it will lend to students. As one of the first banks in Canada to build professional lines of credit, Scotiabank develops its program based on financial need on a student-by-student basis. “We want these students to understand that we help them with their financing so they can focus on their studies,” he says, adding the idea behind the lines of credit is to allow for students to use only what they need as they need it, unlike traditional loans.

Unlike some banks, Scotiabank carries the interest into the balance of its products, so students don’t have to make payments while they are in school. There’s two reasons: one is getting students accustomed to making payments; the other is letting them focus on studying so wrapping in monthly payments.

Penny Spence has been advising law students on financial issues for more than a decade. As director of student financial services at Osgoode Hall Law School, she helped build the country’s first professional student line of credit program through the Royal Bank of Canada. The original line of credit had a maximum of $15,000 a year for three years and a $10,000 increase for articling. That has been increased to $75,000.

One of Spence’s chief concerns is keeping the available credit low. “We have always with the Royal Bank tried to keep the amount they will lend students as low as possible, I know that sounds counterproductive, but students will spend what they can get their hands on.” To that end, she says there are now between 30 and 40 students at Osgoode who will graduate with upwards of $100,000 in debt.

One tactic law schools are using to get students to start thinking about how to pay for their debt loads is to have students complete financial plans as part of the application process. This is sometimes the first time students have to think about their financial situation. Often students will live at home and parents pay for their undergrad. With law school, they often must come up with the money, and are on their own for the first time dealing  with household budgets.

One common thought is, “I’ll make it all back in the summer or when I’m a lawyer.” Think again, says Spence. Consider there are 900 law students at Osgoode alone — one of six Ontario law schools. Each summer, many of those students look to Bay Street for the peachiest placements. “There [are] a handful of these big, top jobs, there are not that many, so if you come to law school with the perception, ‘Oh I’ll be able to get a big job in the summer, that’ll pay me enough,’ it doesn’t happen,” she says.

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Spence also warns about working through law school, part time or otherwise. When planning to do so, students, especially in their first year, can expect their grades to suffer. This of course cuts into the ability to get a summer placement. “Some just have to, and they do it somehow, but it takes a pretty amazing student to balance [a job and] law school,” she says. “In second and third year it is easier to do because they can set their own timetables and they’ve gone through first year and they know how much they have to work. But first year is a tough year so they are better to start out with a clean slate.”

Spence says the financial services office tries to make students aware from the beginning how much it will cost. From the moment a student applies to Osgoode, he or she has to develop a financial plan. Based on that, Spence’s office outlines the bursaries the student may be able to get in the acceptance package. The student is then encouraged to apply for government loans and speak to a bank, possibly about lines of credit. While Osgoode has a working relationship with RBC, students are not required to use its services.

There is $3 million in bursaries — a.k.a. free money — available at Osgoode for students in need. “When they apply for a bursary, they must have a student line of credit in place, or documented proof they have been turned down. They must have proof they have government funding in place or documented proof they have been turned down — those are the two requirements for a bursary,” says Spence.

For students with clean credit, getting a professional student line of credit is fairly easy, she says. The same is not true for students with bad credit, slow payment histories, unpaid accounts, writeoffs or R9s (a revolving account in very poor standing), or bankruptcy. Students can check their credit with both of Canada’s credit agencies, TransUnion and Equifax.

Just as students may have different credit situations when coming into law school, some students may be at different points in their lives. One program developed by the Government of Canada to encourage education at all ages is the Lifelong Learning Plan. In most cases, anyone holding non-locked RRSPs can cash them out and pay a withholding tax. However, the LLP allows students to avoid the withholding tax, as long as they keep to a repayment schedule once they finish school. The plan allows for a student to withdraw $10,000 a year from RRSPs tax-free to a maximum of $20,000. A spouse can also withdraw the same amounts, meaning a total of $40,000 can be withdrawn from plans, basically the cost of tuition and books for a three-year program at most Canadian law schools.

The repayment of the LLP withdrawals begins once the student has been out of school at least one full year. The repayment is 10 per cent of the total amount of the LLP withdrawals, each year for 10 years and never incurs interest. The only issue is when the full 10 per cent is not repaid, the student is then forced to pay the tax on the amount unpaid.

No matter what way law students decide to pay for their education, unless they have the philanthropic relative, they can expect to have debt, says Spence. But a key to managing that debt takes working with banks, the law school, and tapping into the learned experiences of other students.

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