A growing number of high-school graduates turn to government student loans to finance their post-secondary education. Adults returning to school full-time may also elect to do so. I was one of them. There are a few reasons why:
- Parents haven’t been able to set aside enough money into an RESP
- Not enough personal savings
- Inability to obtain financing from a bank
But how do government student loans work? Let’s explore.
Federal Government Student Loans
In Canada, there are 2 levels of student loans: federal and provincial. You only need a single application for both, with your province of residence.
The amount you are eligible is based on several factors such as:
- Type and length of studies: undergraduate, graduate, diploma….
- Full-time vs part-time studying
- Tuition fees
- Family status
- Household income: including income for each member of your household, e.g. parents, spouse…
- Living arrangements: home or away from home
- Disability
As such, it’s impossible for me to tell you how much you could receive. Student Aid has a calculator to help you.
There is, however, a cap on how much you can receive from the federal government. At the time of writing, it’s $11 900.00 per year.
There is also a lifetime limit on how long you can receive federal loans, if you’re studying full-time. For undergraduate/graduate/college, it’s 340 weeks. For doctoral students, it’s 400 weeks.
If you’re a part-time student, there is no time limit.
Repaying Your Federal Student Loan
A number of changes has been introduced by the liberal government over the last 3 years. Interests have been fully eliminated as of April 2023. No interests were charged since April 2021. Interests on outstanding balances prior to April 2021 are still payable. The rates at the time of writing are prime for the floating rate, and prime + 2% for the fixed rate.
After graduation, there is 6-month grace period with no payment required. After that, you’ll have a minimum payment to make, and it’s rather flexible. You can choose the date, increase the amount and extend the amortization period to 15 years.
If you can’t pay back, you can apply for assistance, depending on your income. Note you won’t be able to discharge your student loan in bankruptcy or consumer proposal unless you’ve been out of school for 10 years.
Provincial Student Loans
All Canadian provinces and territories offer student loans. The criteria to qualify are pretty much the same as with a federal student loan. There are also caps and time limits for funding. Depending on what you study, you may also be eligible for partial loan forgiveness.
I can’t cover each province/territory in this post. Please check directly.
The main difference with federal student loans is that most provincial student loans are subject to interests. You need to understand how much you’re charged and how it works.
Each province also offers different grace periods, some interest-free, others with interests.
Repaying Your Provincial Student Loans
Although you only have one application, you’ll most likely have 2 repayments: 1 for the federal, and 1 for your province.
You need to ensure the 2 payments are realistic for your budget.
With most provincial student loans, you can choose between a fixed or floating (variable)rate.
Let’s take Alberta as an example to see how the interest rate works.
The current interest rates for an Alberta student loan are as follow:
– Fixed: CIBC prime only, as of July 1st, 2023.
– Floating: CIBC prime rate, i.e. 6.95% at the time of writing. If the CIBC prime rate goes up, so will the overall interest rate.
Additionally, Alberta sets the maximum amortization period, based on the outstanding balance. For amounts over $ 6 000, it’s 114 months or 9.5 years.
The province also offers a 12-month, interest-free grace period, as of July 1st, 2023.
Let’s assume you have a $ 10 000 loan and choose the fixed-rate. You took advantage of the “grace period” and did not make any payment for 12 months. You also decide to stretch the repayment for the full 9.5 years.
At the end of this period, the total amount repaid will be $ 13 689.82 with $ 3 682.89 in interest. The monthly payment will be $120.09.
If you decided to repay in half that time, you would save $ 1 913 in interests, with a monthly payment of $ 206.49.
The best course of action may be to consolidate all your student loans with a financial institution. If you can’t, aim to repay them within 5 years and do not use the “grace period “if you’re charged interests on it.
Understanding Your Loan Agreement
Your Master Student Financial Assistance Agreement is a legally binding document.
Read it before signing it! You must understand what you’re getting into. Like any other loan, you’ll need to repay it, at some point. Governments have more ways to collect their money than a private lender.
The Money Savvy Blog 