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Your medical student line of credit: What you need to know

A student using a calculator.

A student line of credit may be one of your most important financial tools as you make your way through medical school and beyond. But you may be wondering how a student line of credit works and how it’s different than a loan.

Here are the answers to all the most basic questions you may have.

What is a student line of credit?

A student line of credit gives you access to funds to help cover the costs of medical school — from tuition to living expenses, to all the other fees and expenses that you will need to pay along the way. You can use it at your discretion.

A line of credit will likely play an essential role in your financial plan as you move from med school to residency and into practice, and you’ll have to manage it carefully throughout those transitions.

How is a personal loan different than a student line of credit?

A loan is fixed — you are given the entire amount all at once, and then you pay it back (along with interest) on a fixed payment schedule (usually monthly). The interest is based on the full amount borrowed, and the interest rate can be either fixed or variable. A loan has a term (a date by which it needs to be paid off). If you need more money, you can’t simply increase your loan — you have to apply for a new one.

A student line of credit is flexible. There’s a maximum amount that you can access, but you borrow only the amount you need and pay interest on that amount. And you can borrow and repay funds as often as you wish. As soon as you repay funds, interest stops accruing on the amount repaid.

How much is interest on a student line of credit?

A typical lending rate is the lender’s prime rate,1 but some lenders offer prime minus 0.25% on a student line of credit.

How do I pay the interest?

Some banks require that you pay the interest every month, either automatically from your bank account or manually like you do for a bill payment. Other banks let you “capitalize the interest,” meaning you don’t have to make interest payments while you remain in school and for 24 months after your residency program ends (called the “grace period”). Remember, though, that interest continues to accrue on the funds you borrow and that increases the amount you have to pay back later.

Are all lines of credit the same?

Lines of credit available to medical students, from most financial institutions in Canada, offer a limit of around $350,000 to $375,000 and have similar features.

How should I be using my line of credit?

The answer will depend on your budget and financial plan, which is why it’s important to work closely with your financial advisor to figure these things out. However, there are some general guidelines that you should be aware of when it comes to how to use your line of credit.

The first couple of years of medical school are your leanest, financially — your biggest expenses, besides tuition, will probably be living and lifestyle costs.

In your final year of medical school, you’re going to encounter additional expenses related to residency matching. Before the COVID-19 pandemic, the Canadian Resident Matching Service process was expensive. Besides the application and registration fees, there was often a lot of travel involved, as well as costs for interview training, new clothes, rides to interviews, etc. All 2022 R-1 match interviews will be conducted in a virtual format, but it’s uncertain how the process will evolve in the future.

When you’re a resident, even though you’ll be earning a salary, you may still have to rely on your line of credit for certain expenses, such as those related to travel, conferences and exams.

What’s my first step?

Your line of credit is an important element, but it’s just one part of your financial plan. To get a big picture view of your finances, and to develop a smart strategy for managing it all, it’s important to connect with an MD Advisor* — they’ll help you look at your cash flow, explore government loan options and develop a budget. Taking those steps will help to ensure your line of credit is a source of strength throughout the physician training stage of your career.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

1 Prime rate means the annual variable interest rate published by the lending financial institution from time to time as the benchmark interest rate for Canadian dollar demand loans. This rate is subject to change without notice.

Banking and credit products and services are offered by The Bank of Nova Scotia “Scotiabank.” Credit and lending products are subject to credit approval by Scotiabank.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.