When I was deciding if I should apply for OSAP (Ontario Student Assistance Program), all I really took into mind was that I did not want to take on debt to fund my schooling. I did not want any loans. But my guidance counselor told me that I should apply anyway because some schools do not let you get a job on campus if you have not applied for OSAP, presumably so the students who need the money are chosen preferentially.
So I went home to apply and my dad figured it would be a waste of time. He thought that because his salary was so high, as soon as the saw his income that they would deny me assistance. I tried to explain what the guidance counselor had said, but he would have none of it. Once my dad makes up his mind, it is made up.
So then I was relating my story to a friend and he said that he did not get OSAP, but he got a student line of credit from TD. Hearing him explain it, I thought I would be an idiot not to get one too. So I went in and got a $10, 000 line of credit at 4.5% interest that I had no plans of touching. I thought it would be good to have in a worst case scenario. There are many ways that the good intentioned plan of graduating without debt can go wrong, so this was my back up.
It was not until recently that I was talking to a friend that I began to rethink my choice. This friend works a lot of hours, and he told me how he wants to graduate debt free as well. This of course piqued my interest. But he mentioned that he had an OSAP appointment as well. So I asked him “If you want to graduate debt free why are you taking on debt?”.
His answer seemed so obvious after he said it, but I had never even thought of it. He has his OSAP money sitting in a savings account. That is when it started to click. While he did not really know he was doing it, and also wasn’t doing it that effectively, he was leveraging an investment. Of course he would be lucky if he is earning 1% interest on that money, but the loan is interest free as long as he is in school and also for 6 months after he graduates. All he needs to do is pay back the loan and the miniscule interest goes straight to his pocket.
I have been trying to scrape up cash to buy more investments to build my portfolio and collect more dividends, but with no income finding money to invest is a rare and unlikely event. I have the line of credit but the interest has to be paid monthly and while I could find a dividend yield of 4.5%, that would only cover the interest and I would have to hope for lots of capital appreciation in a volatile market right now to be able to gain anything from the gamble.
With OSAP however, the loan is interest free, meaning I would collect all the dividends and any capital gains. The amount of money received from OSAP varies a lot case to case but I should be able to receive a decent amount to buy a quality dividend stock. My dad earns a high income but my mom is the primary caregiver and her income is much lower, so hopefully the loan will be a lot. I really feel dumb for not seeing this earlier.
So this summer I will be applying for OSAP and will be investing that money. It only makes sense. Every student should apply to OSAP regardless of whether they need assistance or not, whether they want debt or not. This comes with the warning though that investments are not foolproof and there is a lot of risk. It is just the reward is so great and that there are strategies to minimize the risk.I would love to hear others’ ideas on how to optimally use OSAP.