Ottawa permanently abolishes interest on student loans

Adena Ali, Canadian Press

Published on Thursday, November 3, 2022 at 4:25 PM EDT

Last updated Thursday, November 3, 2022 at 4:50 PM EDT

Ottawa plans to suspend student loan rates during the pandemic to alleviate some of the current economic pressure on Canadian youth as the cost of living rises.

as part of that Fall Accounting Update The federal government, filed Thursday, outlined a plan to permanently abolish interest on all federal student and apprentice loans, including loans that are currently being repaid.

Interest rates continue to apply to the local portion of student loans.

According to Rebecca Young, director of finance and state economics at Scotiabank, the move will help graduating students, but ultimately the money won’t go toward tuition and other post-secondary expenses. Interest payments on loans will be reduced.

“To put it into perspective, they are still facing increased spending across the board,” she said.

More than 1.8 million Canadian students owed a total of $20.5 billion to the federal government, with an average loan balance of about $13,367 at the end of school, according to 2019 data from the Canadian government website. is a dollar.

According to Statistics Canada, the average undergraduate tuition for the 2022 academic year is $6,482, while the average graduate tuition is $7,053 for the 2022 academic year.

The Liberal government has stopped accruing interest on student loans in 2021 due to the impact of the pandemic on graduates as they enter their own job market. The measure he was due to expire in March.

The interest rate abolition will begin on April 1, 2023, the accounting update said.

The average student loan borrower saves $410 a year because the loan is interest-free, the government said in a fiscal update. (Student loan interest rates are calculated at a fixed rate of 2% plus prime, or a floating rate equal to the prime rate.)

The federal government estimates that making these loans interest-free will cost $2.7 billion over five years, or $556.3 million on an ongoing basis.

Ending interest on federal student loans forever was a Liberal campaign promise in the last federal election.

Young said some might fear the decision would spur inflation, but given the relatively small scale and containment of the measures, it wouldn’t be a particularly strong argument. .

Ottawa said graduates will still have access to a repayment assistance plan that will suspend student loan repayments until they earn at least $40,000 a year, reducing payments to those earning just over that amount. said.

Earlier this week, the zero payment income threshold for student loans was increased from $25,000 to $40,000 for single households. The threshold increases based on household size.

The move to tackle student loans comes after U.S. President Joe Biden announced his decision to cancel most student loan borrowers by $10,000 and up to $20,000 for those who received a federal Pell Grant. It was done just a few months later. It received considerable backlash.

The White House announced Thursday that it has already approved 16 million applications. Nearly 26 million Americans have applied for student loan forgiveness.

This report by the Canadian Press was first published on November 3, 2022.

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