Ottawa plans at making his pandemic-era hiatus permanent on student ready interest in order to at reduce some of the current financial pressures on young Canadians as the cost of living increases.
As part of its fall fiscal update tabled Thursday, the federal government outlined plans at permanently eliminate interest on all feds student loans and loans to apprentices including loans in repayment.
Interest rates will still apply to the provincial portion of the ready.
While the move is helpful for students graduating, said Rebekah Young, director of fiscal and provincial economics at Scotiabank, it’s ultimately a relief for interest debt payments rather than money for tuition or other post-secondary expenses.
“Overall, they still face high expenses across the board,” she said.
More than 1.8 million Canadian students owe the federal government a total of $20.5 billion, according to 2019 data from the Government of Canada website, the average ready balance at about $13,367 upon leaving school.
The average undergraduate tuition is $6,482 for an academic year from 2022, according to at Statistics Canada, while the average graduate tuition is $7,053 in 2022.
The Liberal government suspended the accumulation of interest on student loans in 2021 due at the effects of the pandemic on graduate students as they entered a unique job market. The measure was set at expires in March.
The elimination of interest will begin on April 1, 2023, according to the budget update.
An average student ready the borrower will save $410 per year thanks to his ready being interest-free, the government said in the financial update. (Student ready interest is calculated either at a fixed rate of 2% plus the prime rate, or at a variable rate equal at prime rate.)
The elimination of interest on these loans is estimated at cost $2.7 billion over five years and $556.3 million thereafter, the federal government said.
The final elimination of interest on the federal student loans was a Liberal campaign promise in the last federal election.
Young said some might worry the decision would stoke inflation, but that’s not a particularly strong argument because the measure is relatively small and contained.
Ottawa says that graduating students will still be able to at use its repayment assistance program, allowing them at pause student ready reimbursement until they earn at least $40,000 a year, and reducing payments for those earning slightly above that amount.
Earlier this week, the zero payment income threshold for student loans went from $25,000 at $40,000 for a one-person household. The threshold increases with the size of the household.
This move at start working on student loans comes just months after US President Joe Biden announced his decision to write off $10,000 for most student ready borrowers, and more at $20,000 for borrowers who received a Federal Pell Grant. He received a significant setback.
The White House said Thursday it had already approved 16 million applications. close at 26 million Americans asked student ready forgiveness.
By Adena Ali