What is the interest charged on student loans?
The current interest rate on the federal portion of Canada Student Loans is prime + 2.5%. Prime is set by the five largest banks in Canada in conjunction with rates set by the Bank of Canada, and is currently 3.95%. So students currently repaying their Canada Student Loan with a floating payment plan, pay 6.45% in interest. (For a fixed-interest loan repayment plan, the interest rate is set when the loan is taken out, to be a fixed rate of prime + 5%).
How much do Canadians, on average, pay in federal student loan interest?
Short answer: about $5,000 in just interest.
Long answer: The amount of interest depends on the size of the student loan, the number of years it takes to pay back, and the prime interest rate.
Below are some examples of interest costs based on the average CSLP loan balances in 2015 for recent graduates who were full-time students, who have a floating interest rate, and repay their loan over the allotted 10 years (6 month grace period + 9.5 years).
Across Canada, based on the 2015-16 CLSP Statistical Review, the average federal portion of a student loan was: $13,306; this means an additional $4,670.93 in interest (114 monthly payments of $161.46).
For university graduates student loan debt is higher, averaging $16,727 upon graduation; this means an additional $5,871.84 in interest (114 monthly payments of $202.97).
For college graduates student loan debt averages $10,172; this means an additional $3,570.78 in interest (114 monthly payments of $123.43)
The average loan balance differs per province. For example PEI has the highest CSLP loan average ($17,704), which would add $6,214.81 in interest; even in Manitoba, the province with the lowest CSLP loan average ($9,710), would still add $3,408.60 in interest.
Keep in mind though that these estimates of student debt are low, since they do not include the provincial portion of student loans, or other private loans. A 2013 BMO study estimated that the average student in Canada graduates with over $26,000 in student loan debt. Similarly, a recent RBC study reports that the percentage of recent graduates with over $25,000 is rapidly increasing, and even three years after graduation 23% of bachelor’s graduates still owed over $25,000 in government student loans. Thus, in terms of comprehensive student debt, the total interest payments are much higher than just the CSLP portion.
Click here to take to calculate how much federal interest you would have to pay.
Why should the government not charge interest on student loans?
Doesn't that just encourage people to not pay back their loans?
Charging interest on student loans forces those who need student loans to pay more for their education than someone who could afford to pay tuition fees up front. This is essentially a tax on low and middle-income students and families.
Plenty of other industries offer 0% interest loans, and people still pay back their loans. You can buy a laptop or car on a payment plan with no interest, why shouldn’t this be an option for your education?
Why is charging interest on student loans bad for the Canadian economy?
Interest fees on student loans are bad for the economy because they hold recent students back from fully participating in the economy. A recent RBC study found that the rising student debt is having macroeconomic impact across Canada. The study finds that recent graduates are delaying major life choices such as buying cars and houses, saving for emergencies or retirement, or getting married and having children, because of the burden of their student debt.
Education is an investment for both the learner and society. Society’s economic return is realized in many ways. For example, a 2012 report showed that British Columbians with university education paid between $80,300 and $140,000 more in income taxes, and required between $15,400 and $18,100 less in government aid throughout their lifetimes. Across Canada, those with a university degree earn 63% more than those with a high school diploma, have lower unemployment rates, and are less impacted during recessions compared to the rest of the working population.
Currently interest fees on student loans are holding back those who are most eager to participate in the economy. The government will see a clear financial return by investing in programs that assist students from low- and middle-income families. To sustain and grow the economy, Canada must have systems in place to ensure that those without the necessary resources can get the help they need to complete a post-secondary program: it is time to eliminate interest on student loans.
Wait, I heard the government was already eliminating interest. What gives?
In British Columbia, the provincial government has committed to eliminating interest on the provincial component of student loans. Four other provinces (Manitoba, Newfoundland & Labrador, Prince Edward Island, and Nova Scotia) have already eliminated interest on their provincial student loans.
When you take out a student loan, typically 60% of the loan is from the federal government and 40% is from the provincial government. So the portion that’s from the federal government still accrues interest even if your provincial portion doesn’t.
Knock Out Interest is asking for the elimination of interest on the federal portion of student loans.
Will speaking out really make a difference?
Student loan interest affects hundreds of thousands of people across the country – not just students, but those who are not in school anymore and are struggling to repay their loans.
Speaking out will help make politicians aware of what is important to people all across Canada. This comes at a time when the youth voter demographic is getting stronger and more important in terms of federal election influence. With the looming federal election, now is the time to speak up and make leaders across Canada hear our priorities.
And it works! It’s only thanks to the work of thousands of people like you that the BC government was convinced to eliminate interest charged on the BC portion of student loans.
What can I do to help?
The first step is to take action! Send an email to the Prime Minister to show your support for the elimination of interest on student loans.
Next, you can share the campaign on your social media. Spread the word and encourage your friends and family to show their support too!
You can also contact your students’ union to see how you can help with on-campus actions and promotion of the campaign.
Every volunteer can help make a huge difference!