Here's How Much It Could Cost The Federal Government To Forgive Student Loans In Canada
Almost 2 million students borrowed from the feds in 2020 and 2021.💰🤑
In the past, there have been calls for the federal government to scrap student loan repayments in Canada, although there are no plans yet to do so.
However, in August, President Joe Biden confirmed that millions of Americans would soon benefit from student loan forgiveness in the United States.
Under a new plan that aims to provide student debt relief, low and middle-income Americans will have up to US$20,000 forgiven, taking the pressure off as many as 40 million people.
It's a similar plan to one previously proposed by NDP leader Jagmeet Singh, who petitioned in 2021 to cancel up to $20,000 of loan debt per student.
But exactly how much would it cost to forgive student loans in Canada?
Well, a lot.
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.
According to the Canada Student Financial Assistance Program statistical review, the average loan balance for Canadian students at the time of their graduation was $14,418 in 2020-2021.
This is up from the year prior when students borrowed an average of $13,549.
It means, unsurprisingly, that forgiving student loans in Canada would cost the federal government a significant amount of money.
A Parliamentary Budget Officer report from 2019 found that in order to scrap tuition fees and forgive student loan debt for graduates earning under $70,000 per year, the cost would be significant.
In the first year, it would cost the feds around $16.4 billion. This would drop slightly to $12.5 billion in the second year and then cost just under $10 billion in the third year and each year thereafter.
With the amount owed by students increasing year-over-year since 2019, the actual cost of forgiving student loans in Canada in 2022 and beyond would be ever greater.
A CTV News report that considers whether student loans should be forgiven in Canada includes the perspective of Aaron Wudrick from the Macdonald-Laurier Institute.
Wudrick argues that sweeping student loan forgiveness would distribute significant resources to graduates and professionals, who he says are not necessarily the most disadvantaged.
"I think it's fair to say you have limited resources, you want to target the money at the neediest group. I think there's a strong argument that (university graduates are) not the neediest," he told CTV.
He added that those who do not go to university, and instead chose a trade or open a business, would be left asking, "Why am I obligated to pay for the decision of other people to go to university?"
\u201cStudents are heading back to campuses soon, and expenses like tuition and supplies add up fast. That\u2019s why we\u2019re supporting you with grants and programs like the Canada Learning Bond and Apprenticeship Loan. We\u2019ve also waived interest on Canada Student Loans until March 2023.\u201d— Justin Trudeau (@Justin Trudeau) 1660781181
Conversely, Canada's NDP argues that cancelling student debt would help graduates to thrive. In a 2021 petition, they said interest repayments are allowing the feds "[to profit] off the backs of young people already feeling the squeeze."
There is some good news for students who owe money, though. The federal government recently announced plans to scrap all interest on student loans in Canada.
It means new students and graduates won't have to pay interest on their loans, even if they're already repaying right now.
Some Canadian provinces also offer student loan forgiveness. For example, recent graduates in B.C. can have their balance wiped if they work in select in-demand occupations.
In Nova Scotia, eligible students graduating from non--professional undergraduate programs no longer have to repay the provincial portion of their student loans.
What's more, a recent federal announcement also increased the zero-payment income threshold for both Canada Student Loans and Canada Apprentice Loans to $40,000, up from $25,000. This means that borrowers earning less than $40,000 are no longer required to start repaying their loans until they make at least that amount.
The monthly cap on affordable payments has also been lowered from 20% of an individual's household income down to 10%.
So, it's not all bad news. Eh?
This article's cover image was used for illustrative purposes only.
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