Canada Is Set To Scrap Federal Student Loan Interest & It Includes Loans Already Being Repaid

The federal government has laid out its plans to permanently end student loan interest in Canada, in an effort to support young people who are struggling with the rising costs of living.

On Thursday, November 3, the Liberals confirmed their plans to scrap interest on all new federal student loans and apprentice loans, as well as existing loans that are currently being paid back.

The proposed changes will be effective as of April 1, 2023, provided they're given Royal Assent.

This would mean the average student borrower in 2023 will be able to save $410 per year by not paying interest on their loans.

For the past two years, the interest on federal student loans in Canada has been waived to support students during the COVID-19 pandemic.

This interest pause will expire on March 31, 2023, the day before the new changes are set to come into effect.

The 2022 Fall Economic Statement predicts that the cost of making all new and existing Canada Student Loans and Canada Apprentice Loans permanently interest-free will be around $2.7 billion over the next five years and $556.3 million each year thereafter.

Interest rates will remain in effect when it comes to the provincial portion of student loans.

It's the latest in a series of changes announced by the government designed to help students and new graduates in Canada.

Just days earlier, Employment and Social Development Canada confirmed changes to the Student Financial Assistance Program’s Repayment Assistance Plan which will allow more graduates to delay loan repayments for longer.

As of November 1, the zero-payment income threshold for both Canada Student Loans and Canada Apprentice Loans increased from $25,000 to $40,000.

It means that borrowers earning less than $40,000 will not be required to start repaying their student loans until they make at least that amount.

Before this, graduates were expected to start paying off their student debt as soon as they were earning $25,000 or more.

That same day, officials also confirmed that the monthly cap on affordable payments would be lowered from 20% of an individual's household income down to 10%.

Under this new cap, the maximum amount a student would be required to pay off their loans each month can only be up to 10% of their household income.

These changes alone are expected to benefit as many as 180,000 Canadians each year.

According to the federal government, half of all post-secondary students in Canada rely on student loans to pay for their tuition fees.

Figures from the 2020-2021 period show that as many as 1.8 million students borrowed money from the feds, totalling $23.3 billion in loans.

That's up from the year before when students borrowed an average of $13,549.