The Canadian government plans to make its pandemic-era pause on student loan interest permanent in an effort to offset some of the present financial pressures on young Canadians as the cost of living increases.
As part of its fall fiscal update tabled recently, the federal government stated plans to permanently remove interest on all federal student loans and apprentice loans including loans that are being repaid currently.
Meanwhile, interest rates will still apply to the provincial portion of a student’s loan.
Rebekah Young, Director of fiscal and provincial economics at Scotiabank said though this move is helpful for graduating students, it is the ultimate relief for interest payments on debt rather than money toward tuition or other post-secondary school expenses.
She said: “In the bigger picture, they’re still confronting elevated expenditures across the board.”
According to 2019 data from the Government of Canada website, over 1.8 million Canadian students are owing the federal government a total of $20.5 billion with the average loan balance at about $13,367 at the time of graduating.
The average undergraduate tuition fee is $6,482 for an academic year as of 2022, according to Statistics Canada, while the average graduate tuition fee is $7,053 as of 2022.
The accrued interest on student loans was suspended by the Liberal government in 2021 due to the effects of the pandemic on graduating students as they set foot in a unique job market. The measure will expire in March.
The fiscal update said the elimination of interest will start on April 1, 2023.
In the fiscal update, the government said an average student loan borrower would save $410 every year as a result of their loan being interest-free.
The federal government said the elimination of interest on these loans will cost $2.7 billion over five years and $556.3 million ongoing.
Young said some may fear the decision could fuel inflation, but that has not been a particularly strong argument as the measure is a relatively small one.
The government said graduating students will still be able to use its repayment assistance plan, allowing them to halt student loan repayment till they are making at least $40,000 per year, and reducing payments for citizens
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