Grade by Grade
C. Planning and Financial Management to Help Meet Postsecondary Goals · Planning and Financial Management for Life After High School

Comparing Forms of Borrowing: OSAP, Loans, Lines of Credit, Credit Cards and More

C2 C2.2About 75 minutes
Learning goals
  • I can tell the difference between money I must repay (loans, credit) and money I do not (grants, bursaries, scholarships).
  • I can describe how OSAP works, including how and when it is repaid.
  • I can compare personal loans, lines of credit, credit cards, overdrafts, payday loans and loans from family by cost, risk and benefit.
  • I can explain how borrowing affects my credit rating and my future choices.

Words to know

grant
Money for education that you do not repay, usually based on financial need.
bursary
Money for education that you do not repay, usually based on financial need and often given by a school or community group.
scholarship
Money for education that you do not repay, usually based on achievement, talent or service.
OSAP
The Ontario Student Assistance Program: government grants and loans (from Ontario and Canada) for eligible postsecondary students.
principal
The amount you borrowed, not counting interest.
line of credit
A flexible loan with a limit; you borrow only what you need and pay interest only on what you owe.
overdraft protection
An arrangement that lets your chequing account go below $0, usually with fees and interest.
payday loan
A small, short-term loan, usually due on your next payday, with a very high cost of borrowing.
prime rate
The interest rate banks use as a base for many loans; it changes over time.
default
Failing to repay a loan as agreed. For OSAP, a loan goes into default after 270 days of missed payments.

"Can I borrow $300 till Friday?"

At some point you will be short of money: a textbook costs more than expected, a laptop dies in November, rent is due before your paycheque. How you borrow can cost you $0 or more than $40 for the same $300, and it can help or hurt your credit for years.

Expectation C2.2 asks you to compare different forms of borrowing and identify their risks and benefits. In Grade 9 math you calculated the cost of loans, credit cards and payday loans. Today you add the big one for postsecondary students, OSAP, and you weigh the risks that are not just about math.

First: money you do not repay

Before borrowing for school, look for money you never pay back:

  • Grants: usually based on financial need (OSAP includes grants for eligible students).
  • Bursaries: usually based on need, often from colleges, universities, unions, employers and community groups.
  • Scholarships and awards: usually based on marks, talent, leadership or service. Many are small ($250 to $1,000), and fewer people apply for small local ones.

Your résumé, essays and references from Lessons 3 and 4 are how you win these.

OSAP: the Ontario Student Assistance Program

OSAP is government financial aid for eligible students in approved college, university and some other programs. Key facts from ontario.ca (pages updated in 2026):

  • Who can apply: Ontario residents who are Canadian citizens, permanent residents or protected persons, and who meet academic progress and other rules. International students are not eligible.
  • What you get: when you apply, you are considered for grants and loans together. You can turn down the loan part.
  • How much: depends on your educational costs (tuition, books, supplies, living costs for full-time students), your course load, and your personal and family financial situation. The OSAP Aid Estimator gives an estimate.
  • Changes for 2026-27: for programs starting on or after August 1, 2026, more of the provincial funding comes as loans instead of grants, and students at private career colleges receive provincial funding only as loans. That means more students will graduate with debt to repay.
  • Apply every year you need funding. First-time full-time applicants complete a short information module first.

Repaying OSAP:

  • No payments while you are a full-time student.
  • Repayment starts six months after you graduate or leave full-time studies (the grace period).
  • The Canada part of an OSAP loan charges 0% interest (since April 1, 2023).
  • The Ontario part charges prime rate + 1%, and interest on it adds up during the grace period.
  • The Repayment Assistance Plan (RAP) can lower or pause payments if your income is low; payments are never more than 20% of family income.
  • Missing payments for 270 days puts the loan in default: it can be sent to collections, reported to credit bureaus, and you cannot get more OSAP until it is fixed.
An OSAP loan over time (rules on ontario.ca, May 2026)In full-time studyno payments dueOSAP loans do notcharge interest yet6-month grace periodno payments dueCanada part: 0%Ontario part: interestadds upRepaymentmonthly paymentsCanada part: 0%Ontario part: prime + 1%RAP if you need help
OSAP loans have no payments while you study full time. The Canada part stays interest-free; the Ontario part starts charging interest in the grace period.

Other forms of borrowing

  • Personal (instalment) loan: a fixed amount repaid in equal monthly instalments over a set term. Benefit: a clear end date. Risk: a fixed payment for years; missed payments hurt your credit.
  • Line of credit: a limit you can borrow from as needed; you pay interest only on what you owe, usually at a variable rate lower than a credit card's. Some banks offer student lines of credit. Benefit: flexible and cheaper than a card. Risk: easy to keep borrowing without a payoff plan.
  • Credit card: convenient, builds credit, no interest if paid in full. Risk: high interest (often around 20% a year) on unpaid balances; minimum payments stretch debt out for years.
  • Overdraft protection: lets your account go below $0. Benefit: avoids a bounced payment. Risk: fees plus high interest; should be for emergencies only.
  • Payday loan: small loan due on your next payday. In Ontario, the most a payday lender can charge is $14 per $100 borrowed, including all fees, and a loan cannot be more than 50% of your net pay (ontario.ca, updated December 2024). That sounds small, but for two weeks it is about 14% every two weeks, or more than 300% a year. Risk: very expensive; people often borrow again to repay, creating a cycle.
  • Loans from family or friends: often no interest and flexible. Risk: misunderstandings can damage relationships. Write down the amount, the repayment plan and dates, even if it feels awkward.
  • Community loans and bursaries: some community organizations, credit unions and cultural or faith groups offer small low-cost loans or bursaries to students. Ask your guidance office and your school's financial aid office.

Borrowing and your credit rating

Every loan or credit card you have (and how you repay it) appears on your credit report. Paying on time builds a good rating, which leads to lower interest rates later. Missed payments, defaults and maxed-out cards lower it, making future borrowing harder and more expensive, and can affect renting an apartment.

Worked example

Let's compare five ways to borrow $300 for 14 days

Sam needs $300 for a textbook and will be paid in 14 days. Compare the cost of five options. Use these example rates: line of credit 9% a year; credit card 19.99% a year (interest charged because Sam already carries a balance); overdraft $5 fee + 21% a year; payday loan $14 per $100 (the Ontario maximum); loan from an aunt, no interest.

  1. Interest for part of a year: I = P × r × (days ÷ 365).
  2. Line of credit: 300 × 0.09 × 14 ÷ 365 ≈ $1.04.
  3. Credit card: 300 × 0.1999 × 14 ÷ 365 ≈ $2.30.
  4. Overdraft: fee $5 + 300 × 0.21 × 14 ÷ 365 ≈ 5 + 2.42 = $7.42.
  5. Payday loan: $14 for each $100 → 3 × 14 = $42.00. As a yearly rate: 42 ÷ 300 = 14% for two weeks; 14% × 26 two-week periods ≈ 364% a year (simple, not compounded).
  6. Aunt: $0 in interest, but Sam should agree on the payback date in writing and keep the promise.

From cheapest to most expensive: aunt $0, line of credit $1.04, credit card $2.30, overdraft $7.42, payday loan $42.00. The payday loan costs about 18 times the credit card for the same two weeks.

Cost to borrow $300 for 14 days (example rates)Loan from family$0.00Line of credit, 9%$1.04Credit card, 19.99%$2.30Overdraft: $5 fee + 21%$7.42Payday loan, $14 per $100$42.00
Same $300, same 14 days. The payday loan bar dwarfs the others; cost is why payday loans are a last resort.
Worked example

Let's estimate OSAP grace-period interest

Priya graduates owing $20,000 in OSAP loans: $12,000 Canada part and $8,000 Ontario part. Suppose the prime rate is 4.5% (an example; check the current rate), so the Ontario rate is 4.5% + 1% = 5.5%. About how much interest is added during her six-month grace period?

  1. Canada part: 0% interest, so $0 is added.
  2. Ontario part: I = P × r × t = 8,000 × 0.055 × 0.5 = $220 (a simple estimate).
  3. Balance when repayment starts: about 20,000 + 220 = $20,220.
  4. Thinking further: paying something toward the Ontario part during the grace period would reduce the interest. Moving the Canada part onto a credit card or line of credit would be a poor choice, because that part charges 0%.

About $220 of interest is added to the Ontario part during the grace period; the Canada part adds nothing.

Just for fun

The word bankrupt is often traced back to the Italian banca rotta, "broken bench": the story goes that a money-lender who could not pay his debts had his bench broken. Luckily, today's consequences involve paperwork, not furniture.

Hands-on activity

Borrowing options comparison chart

You need: paper or a spreadsheet, a calculator, and internet access with a parent or guardian (official sites only: ontario.ca/osap, your bank or credit union, the Financial Consumer Agency of Canada).

  1. Draw a chart with these rows: OSAP, personal loan, line of credit, credit card, overdraft, payday loan, loan from family, bursary or scholarship.
  2. Add columns: Do I repay it? Typical cost, Benefits, Risks, Effect on credit.
  3. Fill it in using this lesson and one official source per row where possible. Write any real interest rate with the date you found it.
  4. Use the OSAP Aid Estimator with a parent or guardian, if they are comfortable, for one program from your Lesson 1 goal. Write the estimate and remember it is only an estimate.
  5. Ask a family member: Have you ever borrowed for something and been glad, or sorry? Add one lesson to your chart.
  6. Circle your first choice and last resort if you needed $500 in your first postsecondary year, and explain why.

What to look for: all eight rows completed, grants/bursaries/scholarships marked as not repaid, real rates dated, and a reasoned first choice and last resort.

Your turn

1

What is the difference between a grant, a bursary and a scholarship, and what do they have in common?

2

When does OSAP repayment usually begin?

3

What interest rate does the Canada part of an OSAP loan charge? The Ontario part?

4

Name one benefit and one risk of a line of credit.

5

What is the most a payday lender can charge in Ontario for a $200 loan?

6

Give one benefit and one risk of borrowing from a family member.

7

How can borrowing help your credit rating, and how can it hurt it?

More practice: warm-up

1

Do you repay a scholarship?

2

What does OSAP stand for?

3

What is the principal of a loan?

4

After how many days of missed payments does an OSAP loan go into default?

5

Which usually costs more for two weeks: a payday loan or a credit card?

More practice: on your own

1

Explain why the 2026-27 OSAP change matters for a student starting college in 2029.

2

Jess borrowed $400 with a payday loan due in two weeks. How much will she repay at the Ontario maximum? What could go wrong next?

3

Calculate the interest on $600 for 30 days on a credit card at 19.99% a year.

4

Why is using a credit card to pay off the Canada part of an OSAP loan a bad idea?

5

Your friend has overdraft protection and uses it every month. What would you suggest?

Challenge

1

Compare the yearly cost of a payday loan with a credit card. If a payday loan costs $14 per $100 for 14 days, what simple annual rate is that? Explain why it is so much higher than 19.99%.

2

Marcus graduates owing $9,000 Canada part and $6,000 Ontario part. With an example Ontario rate of 6%, estimate the grace-period interest. Then give him two smart repayment moves.

3

Rank these for a student who needs $1,000 for tuition by next month, and justify: bursary, line of credit, payday loan, credit card, loan from a grandparent.

Check your understanding

Quiz

1.

Which of these do you not have to repay?

2.

When does OSAP loan repayment usually start?

3.

What interest does the Canada part of an OSAP loan charge (since April 1, 2023)?

4.

In Ontario, what is the most a payday lender may charge to borrow $300?

5.

Which is the main risk of payday loans?

6.

What is a line of credit?

7.

Which habit builds a good credit rating?

For parents and teachers

Big idea: Expectation C2.2 asks students to compare forms of borrowing (OSAP, community loans and bursaries, personal loans, lines of credit, credit cards, overdrafts, payday loans, loans from family) and identify risks and benefits, including effects on credit ratings.

OSAP facts in this lesson come from ontario.ca (pages updated in 2026): repayment six months after full-time studies; Canada portion 0% interest; Ontario portion prime + 1%, with interest during the grace period; default after 270 days; and the 2026-27 change shifting more provincial aid from grants to loans. Rules change, so check ontario.ca/osap when your teen applies.

How to help: If you are comfortable, try the OSAP Aid Estimator together for a program your teen is considering. Talk honestly about your family's views on lending money within the family. If your family has an RESP, it reduces how much your teen needs to borrow.

Common difficulties:

  • Thinking a "$14 fee" is cheap. Convert it to a yearly rate together.
  • Assuming all OSAP is free money. Grants are not repaid; loans are.
  • Forgetting non-repayable money. Encourage applying for small local bursaries and scholarships.