Nov 6, 2022
The Canadian federal government outlined a plan to eliminate federal student loan interest at their fall fiscal update this passed Thursday. The government first implemented a pause on interest rates during the COVID-19 pandemic, and as the cost of living for young Canadians continues to rise, the Liberal government is now acting of their campaign promise to make the pause permanent.
The pandemic pause has been in place since 2021, and is set to expire in March of 2023. According to the fiscal update, the new policy is set to take effect April 1, 2023. As this is a federal plan, interest rates will still apply on the provincial portion of a student’s loans.
The benefits of this move for the next generation of Canadian workers cannot be understated. The Government of Canada website reports that as of 2019, 1.8 million Canadian students owe the federal government $20.5 billion. Statistics Canada has the average loan balance of a graduating student at $13 367, which means those same students will see an average savings of $410 per year, which the Liberal Party believes will amount to $3000 over the lifetime of the loan. Student loan interest was previously calculated either at a fixed rate of 2 per cent plus prime or a variable rate equal to the prime rate.
Rebekah Young, the Director of Fiscal and Provincial Economics at Scotiabank, told the Canadian Press that she believes the move will help students graduating, but more importantly it is ultimately relief for interest payments on debt rather than relief on the money towards tuition or other post-secondary school expenses.
“In the bigger picture, they’re still confronting elevated expenditures across the board,” she said.
This is a valid point. In 2022, the average undergraduate tuition in Canada is $6482, while the average graduate tuition is even more, at $7053. A September 7 report by Statistics Canada shows that students are paying 2.6 per cent more than they were last year, the fourth straight year where tuition has increased.
“Government funding to universities is capped at one per cent; this of course doesn’t keep up with inflation and ends up being a decrease in funding,” Kris Reppas, Nova Scotia chairperson for the Canadian Federation of Students told On the Record News, “Because universities don’t have the funding, they have to be overly reliant on student tuition to remain financially viable.”
Graduating students will still be given the opportunity to use Canada’s repayment assistance plan, which pauses payment until they are making at least $40,000 per year and reducing payments for those earning slightly about that amount.
The plan will cost the federal government an estimated at $2.7 billion over the next five years, and $556.3 million per year after the first five. Christian Fotang, the chair of the Canadian Alliance of Student Associations, told the Globe and Mail that these costs are well worth it.
“This is a monumental investment for students across Canada. The removal of interest on all Canadian student loans and Canada apprentice loans is a welcome change for past, current and future student loan borrowers.”
Image Credit: narcity.com
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