Canadian Federal Government Will Strike Interest from Student Loans
Students will benefit by not having to pay back as much on their federal student loans.
The Canadian government has announced that federal student loans and apprentice loans will be interest-free — potentially saving cash-strapped students thousands of dollars over the course of their loan repayment.
Interest on student loans was already frozen in 2021 as part of pandemic relief measures for students. That legislation was set to expire April 1, but the new measures announced will kick in as the old ones expire.
What is interest, exactly?
If you take out a loan, you have to pay that amount back — plus interest. Interest is the extra money on top that you pay to your lender. For example, if you take out a loan of $100, with an interest rate of 10%, you'll have to repay $110.
With this announcement, federal student loans will no longer charge interest. So if you borrow $100, you repay $100.
Who will be affected by these changes?
As of April 1, 2023, Canadian federal student loans and apprentice loans will be interest free. This applies to students who get a new loan, as well as graduates who are currently in repayment.
Any student with a federal student loan or apprentice loan will be impacted by this new program. If you have a student loan from the federal government, or an apprentice loan, you will no longer have to pay interest on that loan.
Students who take out a new loan will not have to pay interest either.
Does this announcement affect the Repayment Assistance Plan?
The Repayment Assistance Plan helps lower-income students manage their student loans. Students who have financial difficulties can get help with repayment, or even pause payments entirely if their income dips below $40,000 per year.
These cuts to interest on federal student loans won't impact the Repayment Assistance Plan. You just won't need to pay as much money back, regardless of whether you have used Repayment Assistance — or will in the future.
What about provincial student loans?
Most provinces also offer student loan programs — the Ontario Student Assistance Program (OSAP) is one example. There's no change to OSAP or other provincial student loan programs. Only the federal portion of your student loan will go interest-free.
You'll need to petition your provincial government to follow suit on this announcement, but for now, it's just the federal side that will be affected.
What about student lines of credit?
Unfortunately, there's no change here either. Student lines of credit are offered by banks, and they aren't impacted by this announcement.
Lines of credit are often taken out by students to supplement traditional student loans. They're especially popular among business and medical students, who may need loans of up to $100,000.
What's the next step?
To take advantage of the interest cut on student loans, you don't personally need to do anything. The change will be automatic — you don't have to opt in, or sign up, or anything like that.
Most students would love to see a reduction in tuition fees, or straight up loan forgiveness, but neither seems to be in the cards right now. The government has estimated it will cost about $3 billion over the next five years just to cut the interest on federal student loans, so the prospects of wide-scale tuition reductions or loan forgiveness seem dim.
You'll need to write or phone your MP and encourage them to go further in support of students if you want to see wide-spread change. And be sure to vote! It may not feel like much, but making your voice heard, especially as a student or new grad, is so important to our fossilized political process.
The Canadian government cutting interest on federal student loans and apprentice loans is great news for students — but it doesn't have to stop here. Get vocal, get active, and help to reshape the world you want to live in.
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