Financial update 2022: Ottawa will permanently eliminate interest on student loans

0

Ottawa plans to make its pandemic-era pause on student loan interest permanent in a bid to ease some of the current financial pressures on young Canadians as the cost of living rises.

Ottawa plans to make its pandemic-era pause on student loan interest permanent in a bid to ease some of the current financial pressures on young Canadians as the cost of living rises.

As part of its fall financial update tabled Thursday, the federal government outlined plans to permanently eliminate interest on all federal student loans and apprentice loans, including loans in repayment.

Interest rates will still apply to the provincial portion of the student loan.

While the move is helpful for students graduating, said Rebekah Young, director of tax and provincial economics at Scotiabank, it’s ultimately a relief from interest payments on debt rather than money for tuition or other post-secondary expenses.

“Overall, they still face high expenses across the board,” she said.

More than 1.8 million Canadian students owe the federal government a total of $20.5 billion, according to 2019 data from the Government of Canada website, with the average loan balance being about $13,367 as of time to leave school.

Average undergraduate tuition is $6,482 for an academic year as of 2022, according to Statistics Canada, while average graduate tuition is $7,053 as of 2022.

The Liberal government has suspended interest accrual on student loans in 2021 due to the effects of the pandemic on graduating students as they enter a unique job market. The measure was due to expire in March.

Interest elimination will begin on April 1, 2023, according to the financial update.

An average student borrower will save $410 a year with their interest-free loan, the government said in the financial update. (Interest on student loans is calculated either at a fixed rate of 2% plus the prime rate or at a variable rate equal to the prime rate.)

Eliminating interest on those loans would cost $2.7 billion over five years and $556.3 million thereafter, the federal government said.

The permanent elimination of interest on federal student loans was a Liberal campaign promise in the last federal election.

Young said some might worry the decision would stoke inflation, but that’s not a particularly strong argument because the measure is relatively small and contained.

Ottawa said graduate students will still be able to use its repayment assistance plan, allowing them to suspend student loan repayment until they earn at least $40,000 a year, and reduced payments for those who earn slightly above this amount.

Earlier this week, the no-payment income threshold for student loans was raised from $25,000 to $40,000 for a one-person household. The threshold increases with the size of the household.

The move to crack down on student loans comes just months after US President Joe Biden announced the decision to forgive $10,000 for most student borrowers and up to $20,000 for borrowers who received a loan. Federal Pell Grant. He received a significant setback.

The White House said Thursday it had already approved 16 million applications. Nearly 26 million Americans have applied for student loan forgiveness.

This report from The Canadian Press was first published on November 3, 2022.

Adena Ali, The Canadian Press

Share.

About Author

Comments are closed.