As a Canadian living and working in the US, should I pay off my Canadian student loans ASAP?
October 9, 2007 8:57 AM   Subscribe

I'm a Canadian living in the US with an outstanding Canadian student loan. Getting paid in US dollars was working in my favour with regards to making monthly payments on the loan, but not so much anymore with the Canadian dollar on the rise. Is it predicted that the Canadian will stay up and keep rising in value, or this a temporary blip? I'm wondering if I should bite the bullet and pay my loans off now, in one go, or ride it out for a few months to see if the US dollar manages to pick itself back up. I realise that there is no one, scientific answer for this question, but educated guesses are appreciated.
posted by picea to Work & Money (12 answers total) 1 user marked this as a favorite
I'm in the exact same situation as you, but instead of student loans I have my Canadian credit cards. My guess would be 6-8 months.

I guess it depends on what your interest rate on the loan is and what interest you would get on the money sitting in a U.S. bank. In my case, it's worth it to me to pay 5% interest on the CC but have the money in a 6.01% account. Gives me some time to see if the exchange rate drops.
posted by icarus at 9:07 AM on October 9, 2007

Over the long term, the US dollar will drop a great deal. We have taken on a sea of debt that we can't pay. The Fed has declared, essentially, that's going to try to print us out of the mess we're in. We can't pay with dollars that are worth the same amount, so the dollar absolutely will drop a great deal more over time. Eventually, I fully expect that US dollars will become entirely worthless, though that will probably take a decade or more.

Over the short term? Who the hell knows. :)
posted by Malor at 9:07 AM on October 9, 2007

I don't see this as an FX forecasting question, rather one of personal finance.

Picea states "I'm wondering if I should bite the bullet and pay my loans off now, in one go...", which reads to me as getting the cash to clear down the debt isn't the problem.

So what rate of interest are you now paying on your debt vs. what are you receiving on the savings?

If you must disinvest to realise the cash to pay down your debt - perhaps selling shares you already own, for example - what is the tax hit, again considering what you might possibly receive should you keep the money in the market?

There are few circumstances where it makes sense to carry debt, and a lot of peace of mind comes from living debt free. This is especially true if one is subject to exogenous factors that are out of one's control or difficult / impossible to accurately forecast over the horizon in question (e.g. currency exchange rates).
posted by Mutant at 9:36 AM on October 9, 2007

Some Canadian bank forecasts have the CDN reaching 1.10-1.15 US within the next 12-24 months. Obviously, who knows, but further relative appreciation seems more likely than not over the short-mid term.
posted by loquax at 9:38 AM on October 9, 2007

Malor is consistently very doom and gloom and buy gold now and huge economic catastrophes are just around the corner. If he happens to be right, you don't need to worry what currency your debts are in, because when the world falls apart all of those electronic records are going to be lost anyway. If he's right, you should be investing in firearms, ammunition, and learning how to make assless pants so that you can rule the wasteland with your gang of Mad Max crazies.

That said, the CAD has been going up against the USD for at least five years now. Do you have some strong reason to think it's going to change course soon?

If I were getting paid in USD, and expected that to be the case for the foreseeable future, I would want my debts denominated in USD just to make budgeting and planning easier, even if that weren't strictly financially optimal.
posted by ROU_Xenophobe at 9:39 AM on October 9, 2007 [1 favorite]

It's worth noting that the tacit policy of the Bush administration is the "weak dollar," which means that most governmental policies which affect the strength of the dollar are geared towards keeping it weak and, theory goes, strengthening the desirability of our exports. It may change with a new president, but until then, I doubt it. And even then, it'll be a while before you see big changes.
posted by Dee Xtrovert at 10:06 AM on October 9, 2007

Pay it off now if you can. I can't imagine the Canadian dollar loosing value against the American dollar in the near future. If anything, I see the Canadian dollar getting stronger. (Have you heard or read anything in the news that would give you any reason to think the US dollar is going to gain value?)
posted by chunking express at 10:16 AM on October 9, 2007

What ROU said. I would not expect things to change drastically in the foreseeable future. It is far better to wipe out the debt and move on. Unless you are self consciously using the exchange rate for an excuse not to pay the bill... if that is the case then you might as well wait it out.
posted by bkeene12 at 11:06 AM on October 9, 2007

I would pay off the debt. Or if not, I might start putting some money into a CAD-denominated account every month, in order to hedge against further slides by the USD against it, and start building up a fund to pay it back with. (If you can get 6% interest in a CAD-denominated account and the debt is only accruing at 5% or something, by all means do that, as long as there's little to no risk involved in the investment.)
posted by Kadin2048 at 11:29 AM on October 9, 2007

Do you have some strong reason to think it's going to change course soon?

Ontario's lackluster manufacturing due to the high Canadian dollar, the inability of Canada to be able export things cheaply to the U.S. with a high loonie, and the increased attractiveness of U.S. exports (which are getting less expensive). The greenback is probably going to fall some more before it recovers, but there's no real reason at this point to think that it won't.

This is kind of a corollary to the language questions mentioned in this MeTa thread: don't present guesses as real answers. Just about every answer above is a guess except for Kadin2048's, and his would definitely be the best answer so far if you could get a 6% risk-free return on a CAD-denominated account. It's still a pretty good answer, though.
posted by oaf at 1:05 PM on October 9, 2007

Well lucky for Canada there is more to it than Ontario. (And lucky for Ontario there is more to it than making cars.) Canada's economy is doing fine. It has been for quite some time. The dollar has been going up for a while now and things haven't come crashing down around us. Even if the loonie starts to slump with respect to the Euro, I doubt it will slump with respect to the US dollar. The US economy looks to be a suck fest; Canada's not so much. At the very least we still have oil and minerals we can sell to China and whomever else even if we can't build cars anymore.
posted by chunking express at 1:32 PM on October 9, 2007

You should not try out-predict the market. Money markets are like stocks. The posted value represents the combined analysis of numerous experts with better tools and better information than you will ever have. You can try to beat them at their game, but it is very hard, very risky, and requires balls of steel.

To predict the current rally against the American dollar you would have had to predict the moment of the housing bubble burst, the beginning of the oil producing countries' move away from the dollar, the Democrats not stopping the Iraq war, and Bush not giving up he his weak-dollar policy. That's hard. Could you have done it? Could anyone here have done it?

A better strategy is to minimize your exposure to currency fluctuation. In your case that means pay your Canadian debt at medium speed.

Then again, back when I was in your situation, from 2002 to 2006, I paid my debt as fast as I could. It was partly to save on interest, and partly because I predicted that, whatever they would be, Bush's policies would be disastrous for America. He did not let me down.
posted by gmarceau at 7:57 PM on October 9, 2007

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