May 21, 2021 | By: Gursh Singh

Student Loans 101: What to Know about Student Loan Debt in Canada

Debt Management | Student Loans

For many Canadians, post-secondary education can be the key to fulfilling their dreams. Colleges and universities offer a variety of degrees and diplomas to help people of all ages learn the skills they need to succeed in their chosen field. However, while post-secondary education in Canada isn’t as expensive as it is in other countries, it can still be more than some people can afford on a limited budget. This is where student loans can help.

What is a student loan? How do they work? What’s the average student loan debt in Canada? Where can you find student loan debt help? And can debt consolidation services help you find student loan debt relief in Canada? Let's find out!

Want to learn more about personal finances for teens and young adults? Check out our webinar! 

The Cost of Canadian Education

It’s hard to generalize the cost of post-secondary education in the Great White North. There are a lot of variables to consider, including:

  • Which school you attend;
  • Whether you’re pursuing an undergraduate or graduate degree;
  • How many credits your degree requires;
  • Whether you live on or off-campus;
  • What specific field of study you pursue;
  • Your eligibility for other assistance programs;
  • Whether you’re a resident of the province you study in;
  • Scholarships you earn; and
  • Living expenses (food, shelter, transportation, etc.)

However, some sources put the average cost of post-secondary education for Canadian students at over $6,400 per year for undergraduate programs, and over $7,000 for graduate programs. Multiply that over the length of the program, plus school and living expenses, and it’s no wonder why so many people need student loan debt help!

Need help budgeting for school? Download our Budget Planner + Expense Tracker!

What Is a Student Loan?

A student loan is a loan provided by the government (federal and/or provincial) intended to pay for post-secondary education costs—such as university or college tuition.

When you apply for a student loan, you don’t actually choose the amount of money you apply for. Instead, the amount of your student loan is based on a number of different factors related to your financial situation, such as income, number of dependents, and tuition costs.

There is also the option of getting a student line of credit, but they are very different from a government student loan (more on this later). Also, student lines of credit aren't eligible for the same student loan forgiveness or assistance programs that government-backed loans may qualify for. 

Loans and Other Options for Students

Eligible students have the option of obtaining a government student loan (federal and/or provincial), a student grant, and a student line of credit.

1. Federal Government Student Loans 

These are loans provided directly by the federal government; however, you apply for them through your province or territory. A federal government student loan is granted and processed through the Canada Student Loans Program. This program provides loans to Canadian students to help them cover costs and expenses related to their post-secondary education, up to a certain limit.

These loans must be repaid in full. The full loan amount (plus interest) will be owed back as debt after the student graduates or finishes their studies. However, while they're in school, and for six months after they graduate, the loan doesn't accrue interest. Also, students are not expected to make any payments towards their student loan during that same time period (during school plus 6 months after graduating).  

2. The Canada Student Grants Program (CSGP)

The Canada Student Loans Program also provides non-repayable grants to eligible students who can demonstrate financial need. Unlike a Canada Student Loan, you don’t have to pay back the grant money (although, it could impact your taxes).

Both federal student loans and grants are delivered in partnership with participating provinces and territories. 

3. Provincial Student Loans

These are loans provided by your province or territory. In some cases, you may be able to obtain a provincial student loan along with your Canada Student Loan. Or, it may replace a Canada Student Loan if you are denied one or one isn’t available in your province or territory.

It’s important to note that different provinces will have different rules for determining loan eligibility, amounts, and repayment. For a list of helpful links to different provincial and territorial student aid services, click here

It’s also important to note that if you get both a federal loan and a loan from the provinces of Alberta, Nova Scotia, Manitoba, or Prince Edward Island, you’ll have two separate loan payments to make after you graduate.

4. Student Lines of Credit

Let's say you either don't qualify for a student loan, or the funds you received aren't enough to cover the full amount of your post-secondary expenses. Another option for students who still need money to cover their tuition and/or living expenses while in school is obtaining a student line of credit. 

Students can apply for a student line of credit at their bank or another financial institution. But student lines of credit are very different from government student loans and will have different repayment terms, requirements, varying interest rates, etc. There are also other differences that you should know before getting a student line of credit.

For example, in some cases, a student line of credit will require a cosigner. Also, a student line of credit accrues interest while the student is in school, and they may be expected to make payments towards the interest while in school, too.

Some financial institutions may offer a grace period of a few months after the student graduates or finishes their studies, during which they are only expected to make payments towards the interest on their student line of credit, instead of paying back the principal as well. But these details vary depending on the financial institution.

It’s best to be cautious, read the full terms of a student line of credit, make sure you understand the requirements and repayment schedule, and always read the fine print.

The Impact of Student Loan Debt in Canada

While a university or college education can help you get the proverbial skills to pay the bills, the impact of student loan debt in Canada cannot be denied.

With the average student loan debt sitting at around $15,300 for college graduates and $28,000 for a Bachelor’s degree, many young Canadians are finding it difficult to start their own businesses, buy homes, or set aside money for the future. Instead, a significant portion of their money goes towards making loan payments and paying interest charges.

The billions of dollars owed by students has had a major economic impact on the country. So, many have started to investigate student loan forgiveness options for Canadians. For example, some political parties have announced plans to push for student loan forgiveness that would cancel up to $20,000 in federal student loan debt per Canadian.

There was also a temporary freeze on federal student loan payments and interest accruing on their student loans, which was announced in March of 2020. Although short-lived—the freeze ended on September 30 that same year—the temporary freeze on payments and interest is an example of student loan debt relief in Canada that was a direct result of COVID-19.

Recently, the Government of Canada announced that as of April 2021, the interest freeze on Canada Student Loans would be extended until March 31, 2022. They have also proposed to extend the freeze for an additional year, until March 31, 2023. However, those who owe student loans are expected to continue making their payments; the only difference being that their student loan would not be accumulating interest during that time period.  

For those who owe a lot in student loans, student loan debt relief may feel like a far-off dream. So, they may consider other options, like taking out other loans to help pay off their debt, like a debt consolidation loan. A debt consolidation loan takes multiple forms of debt and combines them into a single loan that you can repay—usually with better interest rates or more favourable terms.

Why Would You Want to Use a Debt Consolidation Loan or Student Loan Refinancing?

Most student loans have fairly good interest rates, so it wouldn't make sense to take out a loan at a potentially higher interest rate to pay off a student loan. Plus, interest on student loans is tax deductible, while the interest on traditional loans is not. But if a graduate has other forms of high-interest debts, like credit cards and payday loans, they may consider a debt consolidation loan to pay it all off in one fell swoop at an overall better interest rate.

Anyone considering consolidating their student loan debt into a new, debt consolidation loan should know that it does not make the debt go away—you will still owe the money, but just to a different lender, at a different interest rate, and with different repayment terms.

Have questions about Debt Consolidation? Learn Everything You Need to Know about Debt Consolidation here!

What Are the Disadvantages of Refinancing Student Loans?

While refinancing does help simplify loan payments and can even result in a lowered interest rate, there are some disadvantages to this practice.

First, your loans won’t be owed to the government anymore. This may mean missing out on student loan forgiveness programs, tax benefits, and other key incentives offered by the government. However, this can be balanced out if the terms of the loan are favourable enough.

Another issue is that the interest rate for a refinanced student loan may actually be higher than the interest on the original loan. For example, if the loan is a variable rate loan, the interest rate could grow over time to be several times that of the original loan.

Why You Should Seek Help with Student Loan Debt Relief

Some people may be embarrassed about needing the financial help, not know that student loan forgiveness and repayment assistance might be an option, or they may not like taking what they feel is a handout. However, it’s important to know that it isn’t wrong to need help.

If you’re struggling with student loan debt, it’s important to look into student debt relief options in Canada and accept help—from government programs, from friends and family, or from non-profits like Credit Canada that provide judgement-free support and advice for Canadians in debt.

How to Manage Student Loan Debt while in School

One way to avoid student loan debt is to practice some money management as a student. With some smart money management, you could minimize or even avoid debt rather than having to hope for the government to launch plans for student loan forgiveness in Canada.

Need Help with Money Management? Download our Money Management and Budgeting Guide. 

So, what are some things to consider that would decrease a student's debt load by the time they graduate? 

1. Pick a Field of Study with Low Tuition Costs and High Employability

Want to have an easy time paying back your debt so you don't have to rely on student loan forgiveness or debt relief options? Consider picking a field of study that has a relatively low tuition cost but a high degree of employability.

For example, a nursing degree is often less costly than a dentistry or pharmacy degree—but has similar prospects for employability.

Of course, it’s important to make sure that the field of study you pick is still relevant to your interests. There’s more to life than just making money!

2. Pick a Campus That’s Close to Home

Lodging can be an enormous expense for college and university students. So, instead of living on campus, it can be more affordable to commute from home. A parking pass and the cost of gas are often way less expensive than an overpriced dorm.

Alternatively, consider looking for apartments that are off-campus but still close by. While rooms near school may still be costly, they’re often less expensive than a dorm. Plus, you don’t have to deal with dorm managers!

Additionally, you can split an apartment with another student to further reduce costs. This can help stretch your housing budget even further. Though, it's important to make sure you room with someone you can get along with.

3. Create a Written Budget

One way to make student debt not so scary is to create (and follow) a monthly budget.

Start by writing down what your monthly income is from all sources. Whether it’s your average paycheque from your job, an allowance, inheritance, money from investments, etc.—if it’s income, you should include it in your budget.

The next step is to write down your current liquid assets (i.e., the money available to you in your bank account). If you're not currently earning an income, this may be all you have to work with for your entire post-secondary education (no pressure).

After tallying your current assets and income, start writing down all of the expenses you incur in a month. It can help to start with the big things that are always the same—such as rent money, utilities, cellphone bills, streaming subscriptions, and other expenses that are billed each month.

Then, start recording all of the other things you spend money on each month. Things like gas, food, Ubers, clothes, games—anything and everything.

Finally, once you’ve tallied all your costs, compare that to your income or available money. Does your spending outpace your income? If so, what can you cut that you don’t need as a student?

Or, are you earning more than you’re spending? If so, congrats! Keep an eye on your spending habits to make sure that you keep a positive income-to-spending ratio.

4. Consider Paying Student Loans While in School

If you’re comfortably earning more than what you spend in school, consider making payments on your student loan while you’re still attending! Although the loan won’t be due for payment until six months after you graduate, and it won’t even start accruing interest until the grace period ends, making payments earlier rather than later can make a major difference!

For example, say you have to take $18,000 in student loans to pay your tuition. However, in your last two years of school, you find a great job that pays relatively well (though not as good as the job you hope to get after you graduate). If you pay off $4,000 of your student loan debt before the loan starts accruing interest, you would only have $14,000 in student loan debt at the end of your education.

If you decide to have a floating interest rate on your Canada Student Loan equal to the prime rate, which is currently 2.45 percent, your monthly payment would be $177.14 (while that rate stays at 2.45 percent) and you would pay $2,194.22 in interest on that $18,000 debt. However, if paid down to $14,000 before the interest grace period ends, your monthly payment would be $137.78 and you would pay $1,706.62 in total interest—saving you almost $500.

In other words, the sooner you pay your student loan debt, the less you pay in total.

Credit Canada offers Free Financial Guidance and Support

Have questions about student loan repayment in Canada? Get assistance from a Credit Counsellor by reaching out to Credit Canada! Our Counsellors offer judgement-free service and support. Or, get started on the road to freedom from debt with a free Debt Assessment. All of our counselling is free, and our Counsellors are happy to help!

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