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I am going to grad school in Canada this September and have a chance to borrow ~$15000 at a rate of prime+1% (provincial loan) and prime+2.5% (federal). I would guess the 15000 is split 50-50 between provincial and federal governments - but I am assuming it's all federal.

This mean I get $15000 at (2.7 + 2.5 = 5.2)%. I don't spend a lot, and keep most of my money in a mutual fund that has returned ~6% in the past year. Is it better to take this student loan even if I don't need it?

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Applying for OSAP has several advantages:

  • the loan rate may be less than from private lenders
  • you don't have to make any payments (and I believe you don't accumulate interest, but please double check that) as long as you are still a full time student
  • some of the amount you get may be in the form of a grant, which you do not have to repay. For example undergrads with low enough family income get 30% off tuition, and do not have to repay that. A student I know applied for $5000 of loan and was told "Here is $1000 grant and $4000 loan." Free money is free money, right?

Borrowing money when you don't need to is usually foolish. However Canadian student loans are designed for people with no savings who need to borrow the money in order to get their education. As a result they are subsidized in ways that make them highly attractive. In your place I would take the loan and leave my mutual fund to sit and earn me 6%.

BTW look into NSERC or SSHRC money which is a stipend you do not pay back at all, it's income. Your grad office should have the details.

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