Federal student loans will become interest-free, Freeland says in financial update

Finance Minister Chrystia Freeland announced plans to eliminate interest on federal student and apprentice loans as part of the government’s fall budget update.

The move, made amid soaring costs of living and the threat of a looming recession, would bring relief to many budget-strapped young Canadians who have borrowed to fund their education. The measure, if implemented, would take effect April 1, the day after a temporary freeze on interest accrual on federal student loans expires.

This would make the loans interest-free at that time and also apply to those currently being repaid.

But the new policy would have no impact on student lines of credit, which are provided by private financial institutions and have variable interest rates. Students and recent graduates with balances on their lines of credit have seen their borrowing costs rise in recent months as the Bank of Canada raised its trend interest rate to fight inflation.

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Limits on how much students can borrow from the government mean many are forced to turn to financial institutions for additional funds, often in the form of student letters of credit. Line of credit balances over $100,000 are not uncommon for students pursuing professional studies in fields such as medicine and law.

And the policy would not eliminate any interest in provincial or territorial funding.

Student groups enthusiastically welcomed the news as a positive change in higher education funding.

“This is a monumental investment for students across Canada,” said Christian Fotang, President of the Canadian Alliance of Student Associations. “The elimination of interest on all Canada Student Loans and Canada Apprentice Loans is a welcome change for past, current and future borrowers.

But some education experts noted that the change did not reduce tuition fees or turn loans, which must be repaid, into grants.

Erika Shaker, director of the national office of the Canadian Center for Policy Alternatives, a left-leaning think tank, called the proposed reform “welcome” but also “a very first small step in a much bigger need to address a crisis of student debt. .”

Half of all post-secondary students in Canada rely on student loans to help pay for their education, the federal government said in its fall update, released Thursday. Eliminating interest on the federal portion of government loans would save the average borrower $410 a year, he added.

The proposed change would cost taxpayers $2.7 billion over five years and $556.3 million per year thereafter, the government estimated.

The new policy would not affect students’ ability to access the Repayment Assistance Plan, which allows borrowers to reduce payments if they encounter financial hardship or suspend repayments entirely if their income is below 40,000 $ per year.

Ottawa suspended the accrual of interest on federal student loans beginning in April 2021, in response to the economic disruption caused by the pandemic, which has disproportionately affected students and young workers. He makes his new proposal to eliminate interest for good as the country faces a record affordability crisis in the housing and rental market, with young Canadians particularly hard hit by soaring rents and rising prices. mortgage costs.

With files by Joe Friesen

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