The federal government has announced it will permanently eliminate interest on all federal student loans. It first put a pause on student loan interests during the pandemic to help young Canadians as the cost-of-living rises. However, interest rates will apply to the provincial portion of a student’s loan. Elimination of interest rates on student loans was the Liberal government’s promise in the last election.
Based on the 2019 data from the Government of Canada, over 1.8 million Canadian students owe $20.5 billion to the federal government. This comes down to an average of about $13,367 at the time of leaving school. According to Statistics Canada, the average undergraduate tuition fee is $6,482 for the academic year while the average graduate tuition fee is $7,053.
The federal government shared a fall fiscal update where it revealed plans for permanently eliminating interest on all federal student loans and apprentice loans. These include loans currently being repaid as well. On average, a student would save $410 per year as a result of their loan being interest-free. This is expected to cost the government $2.7 billion over five years and $556.3 million ongoing.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said that this will be a relief for students in terms of interest payments but not on other post-secondary school expenses or tuition.
Last year, due to the effects of the pandemic and students entering a relatively new job market, interest on student loans was paused by the liberal government with an expiry date of March. Now, the new plan will come into effect from April 1, 2023. Graduating students will still be able to use the repayment assistance plan which allows them to pause student loan repayment until they are making at least $40,000 per year. Those earning slightly above that amount, have their payments reduced.
The student loan interest elimination plan was part of the larger Fall Economic Statement that was tabled on November 3 in Ottawa. The mini-budget proposes modest new spending to demonstrate fiscal restraint after the massive pandemic-era spending. The plan also includes new measures to help Canadians struggling with the rising cost of living and improve clean energy investment.