Ask an expert: Repaying student loans

Q. If you are a parent with a child who has already graduated, what loan repayment strategies do you recommend since interest rates will likely rise?

We can’t say for sure that interest rates will rise. We’ve seen rates turn negative in some countries. Paying off debts can be viewed as a guaranteed rate of return on your money. So paying off debts is equivalent to receiving that interest rate in a GIC. If GIC rates are higher than the interest on the loan, then it would be better financially to invest the money rather than pay off the debt. The thing to remember with debt, especially student or consumer debt, is that it’s often an emotional and psychological burden. So the sooner students can pay it off, not only will they feel better, but they can also work toward building up their net worths.

Students who’ve already graduated should take stock of loans they currently have and develop a plan to pay them off. Higher-interest loans should be paid off first.

If students have government loans, they should at least pay the minimum. But these government loans often have assistance programs if graduates are earning low incomes and cannot afford the debt repayments (which can be more helpful than consolidating government loans into slightly lower-interest loans). These government loans are also tax-deductible and students may end up paying less in total than a loan with a lower interest rate. Read more about that here.

If parents are able and willing to loan money to their children, it might help students pay off debt at a lower interest rate than they could get at the bank. But parents must be in an appropriate financial situation to do that, and they must consider if their children will be diligent in paying back the loan. They should also look at what return on their money they’re giving up by doing this.

Susan Daley is an investment advisor at PWL Capital Inc. She can be reached at sdaley@pwlcapital.com.