These days, it almost seems like a Bachelor degree is the new high school diploma. Just way more expensive.
With over 2 million Canadians enrolling in University or College every year, a lot of people have student loans on their mind.
Any time you take out a loan for a huge amount of money, you should be informed and have a plan for paying it off.
But student loans encourage putting off these thoughts…since your payments usually only start 6 months after graduation. And this magical post-graduation world can seem very far off when you’re neck deep in finals, textbooks, and assignments.
No matter how far into your degree you are, you should have a better understanding of what’s funding you and, more importantly, how you’re going to pay your dues.
- How interest rates work
- Student credit cards
- Personal line of credit
- Federal student loans (covers up to 60% of your need)
- Provincial student loans (covers up to 40% of your need)
How interest rates work
One of the most important things you should know before doing any type of borrowing is the interest rate.
If you don’t pay your loan back right away, you don’t just pay back what you borrow, but you also have to cover any interest charges too. And these extra charges can skyrocket the amount you owe. It sucks.
So it’s best to get a couple terms under your belt before you start borrowing.
Every year, the biggest banks in Canada calculate a base rate of interest that they’ll use on the loans they hand out. It often changes based on how the Canadian economy is doing, so it can be lower one year and higher the next.
There are entire careers based on examining these kind of numbers, so you know it’s complicated and hard to predict. All you need to worry about at this point is what the end result is.
Fixed rate vs floating rate
For loans you usually have two options – a fixed rate or a floating rate.
What you pick determines the percent of interest you’ll be paying on top of the prime rate.
The fixed option uses the prime rate of the year you start paying back your loans. No matter what happens after that, you’ll always be using that same rate the whole time you’re paying back your loan. While this sounds good, these rates always start out higher than the floating rate, usually about prime + 5%.
With a floating rate, the amount of interest will change every time the prime rate changes. But it starts out much lower than the fixed alternative, something like prime + 2.5%.
If you prefer security and predictability, the fixed rate may be your better option. But floating rates tend to be quite a bit lower (and usually stay that way) – though you don’t know what next year may bring.
Interest rates on credit cards
That being said, credit card interest rates are a whole different beast.
You pay different rates on different spending options of the card (purchase, cash advances, and balance transfers), but the most important one (purchase rate) can be upwards of 21%.
This means if you don’t pay back what you borrow, you’ll have to pay that amount of money plus 21%. So if you don’t pay back $200 for a year, you’ll have to pay $42 extra, even though you don’t get anything more out of it.
Student credit cards
First things first, never use your credit card for purchases you won’t be able to pay off by the end of the month.
That being said, having a credit card could help build credit history and be a back-up for emergency situations that might crop up – you really never know.
And since most student credit cards have no annual fee, you get this extra bit of security for free. Not bad, eh?
But you might be thinking, “I’ve heard such bad things about credit cards…”
“Should I really get a credit card?”
There are many cautionary tales out there about credit cards, especially student ones.
And for good reason. It’s important to be smart about your credit card and remember that it’s not free money. You need to pay it back at the end of the month, every month.
If you don’t, you’ll be hit with huge interest rates that won’t be fun to deal with.
What you may not know about credit cards are all the good things they can give you. As long as you’re smart with your spending, fantastic perks and rewards can be yours.
And unlike the credit card antis, I know that you’re more than capable of being smart and responsible. I believe in you, so believe in yourself too.
On top of building your credit score, credit cards offer:
But there’s more…
Since you’re a student, you’ve probably heard of this dandy little program called Student Price Card, or SPC.
This gives you 10-20% off at hundreds of locations, all for only $10 a year. As a student, you should consider having this in your wallet.
Personal student loans: Lines of credit
Since student credit cards tend to have quite low credit limits, you might want to consider a personal line of credit as well.
This type of loan works a bit like a credit card where you’re given a predetermined amount of credit, but you only have to pay back (and pay interest on) what you take out.
For example, if you’re approved for a $10,000 line of credit, but only use $3,000, you just need to pay back the $3,000.
This is especially useful for things like tuition and books, or even emergency situations that come up.
You can apply for a student line of credit through your bank, but consider your options and find out who has the best interest rate. Each of the 5 largest Canadian banks offer their own program.
Here’s a quick rundown of each:
|Bank||Maximum amount||Payment-free period||Interested?|
|CIBC||$60,000||12 months||More info|
|Scotiabank||$40,000||12 months||More info|
|BMO||$45,000||12 months||More info|
|RBC||$5,000 per year||24 months||More info|
|TD||$80,000||24 months||More info|
Note: All payment-free periods still require you to pay interest.
Federal student loans and grants
Aside from credit cards and lines of credit, you have options for actual loans that you won’t be expected to pay off until 6 months after you leave school.
Federal student loans are those given to full-time and part-time students by the government of Canada. There are 2 options – loans and grants, the difference being that grants don’t need to be paid off. When you apply for loans you’re automatically assessed for grants too.
To be qualified, you’ll need to show that you actually need the money and be enrolled in one of the designated post-secondary institutions.
The amount of funding you’ll receive depends on how much the government thinks you need. They figure this out by the following formula:
Education costs – how much you should be able to pay = your need
The cost includes both tuition and living costs, and the amount you should be able to pay includes things like your personal savings, your parents’ salaries, and any education funds you may have.
Your eligibility also depends on what province or territory you’re in. Provincial loans are either:
- integrated with the federal loan,
- available alongside the federal loan,
- your only option, or
- not available.
If your province has integrated student loans, it means that you can apply for both provincial and federal loans at once. It’ll come as one loan, though you’re technically getting it from two places (your province + Canada). When it comes time to pay it off, you’ll only have to make one payment that covers both loans.
When student loans are available alongside federal loans, that means you have to apply for both separately, you receive them as separate loans, and you pay them off separately.
And some provinces don’t offer provincial level loans at all – and still others don’t let you apply for federal loans.
Here’s a breakdown by province:
|Province/territory||Federal Loan||Provincial Loan||Combined|
|Newfoundland and Labrador|
|Prince Edward Island|
Canada Student Loan Program
The Canada Student Loan Program is the standard loan that you probably think of when you hear the term. You get a certain amount of money and are expected to pay it back plus interest once you’re done school.
This kind of loan will pay for up to 60% of your need, for a maximum of $210 per week of study. This comes out to $7,140 for an 8-month (34 weeks) school year. The rest can be fulfilled by provincial student loans (if applicable).
You can get this loan for the length of your program, plus 1 year if needed, for a lifetime maximum of 340 weeks for full-time students.
Part-time students’ maximum is a bit different – you can receive up to $10,000 over the course of your studies, with no limit on the number of weeks.
These loans remain interest free until you’ve graduated.
Paying back your Canada Student Loan
Once one of the 4 following situations is true for you, it’s time to start paying back your loans:
- you graduated,
- you transferred to part-time studies (if you were originally full-time),
- you dropped out, or
- you’re taking more than 6 months off from school.
Though you don’t need to start paying off your loans for 6 months after leaving school, please remember that interest does accumulate during these months. This payment-free period just means you won’t be hounded by the government to start paying it off – yet.
Interest on Canada Student Loans
Currently, you have 2 options for interest rates on your Canadian government loans:
- fixed at prime rate + 5%, or
- floating at prime rate + 2.5%.
As explained above, this depends on how much of a risk you’re willing to take. Only do what you’re comfortable with.
Canada Student Grants Program
The second federal program is the Canada Student Grant. When you apply for the loans program, you’ll automatically be considered for a grant as well, so there’s no need to apply for the grant specifically.
There are 7 different grants available, each with different amounts of maximums. The overall maximum is $3,000 per school year (8 months) – which is about $86 per week of study.
Check out the different situations available here.
Paying back your Canada Student Grant
What makes a grant different from a loan? You don’t have to pay it back.
It’s much less money, but not having to pay it back is a definite plus. Who doesn’t love free money?
Provincial and territorial student loans
If you’ve maxed out or don’t qualify for federal student loans, you can apply for a loan from your province. This, of course, depends on your province or territory:
- British Columbia
- New Brunswick
- Newfoundland and Labrador
- Northwest Territories
- Nova Scotia
- Prince Edward Island
Alberta student loans
The province of Alberta offers both loans and grants for students enrolled at one of Canada’s designated schools.
Both programs work the same way as the federal options. You have a payment-free period of 6 months after graduation for loans, and grants don’t need to be paid back.
Interest on Alberta student loans
Your interest rate is automatically set to float along with CIBC’s yearly prime rate.
You can ask to switch to a fixed rate, but you can’t go back after you make this change. Your rate will then be the current prime rate + 2% for the duration of your loan.
More information here.
British Columbia student loans
British Columbia offers integrated loans that combine what you receive from the federal government with what you get from the province. This makes the repayment process more streamlined since you only have to make one payment that covers both loans.
The maximum amount of funding you can receive per week of full-time study is $320, and this goes up to $510 if you have dependent children. This comes out to $10,880 and $17,340 per 8-month school year.
Interest on British Columbia student loans
The interest on British Columbia student loans is similar to the federal loans, where the fixed option is prime + 5% and the floating rate is prime + 2.5%.
Get more info here.
Manitoba student loans
Manitoba works similar to British Columbia because when you apply for Manitoba student loans, you’re also automatically applying for Canadian student loans and grants at the same time. Your payments will also be made to one source for both loans.
The maximum amount you can receive from Manitoba is $140 per week of study, which works out to $4,760 per 8-month school year.
Interest on Manitoba student loans
Lucky for you, there’s no interest on the portion of your loan provided to you by the province of Manitoba. But you’re still required to start making payments 6 months after your program ends (or you leave school).
More information here.
New Brunswick student loans
New Brunswick also offers integrated student loans, so when you apply for a loan from New Brunswick, you’re also applying for a Canadian student loan and grant automatically. You’ll also only have to make one payment that goes towards both loans.
The maximum amount you can get from New Brunswick is $140 per week of study, or $4,760 per school year (8 months).
Interest on New Brunswick student loans
New Brunswick’s interest rate is the same as Canada’s: fixed at prime + 5% or floating at prime + 2.5%.
Get more info here.
Newfoundland and Labrador student loans
If you live in Newfoundland and Labrador, you may be qualified to receive student loans through the provincial government. These loans are combined with potential loans you may receive from the Canadian government as well.
Newfoundland has 2 different maximums for their loans: $40 per study week at an in-province school, or $140 per week at an out-of-province school. This comes out to $1,360 or $4,760 per 8-month school year.
Also, if studying outside of the province, up to $100 per week of your loan could be in the form of non-repayable grants.
Interest on Newfoundland and Labrador student loans
There’s no interest on the portion of your student loan funded to you by Newfoundland and Labrador, but you’ll have to start paying it back 6 months after you finish school.
Here‘s some more info for you.
Northwest Territories student loans
If you’re a resident of Northwest Territories, you can only receive funding from your territory. You’re not eligible for federal loans and grants.
The maximum amount you can get with this program is $1,400 per month, which is $11,200 per 8-month school year.
Interest on Northwest Territories student loans
Your loans are interest free for 6 months after you stop going to school, whether it’s because you graduated, took a break, or dropped out.
After 6 months, you’ll begin gaining interest at a rate of 1% below the prime, based on the Bank of Canada’s prime business rate as of January 1st that year.
But you pay 0% interest on your loan if you live in the Northwest Territories once your 6-month interest-free period is up. With this option, you’ll have to re-submit an application every year to confirm that you’re still living in the territory.
Get more information here.
Nova Scotia student loans
Nova Scotia’s student loans are integrated with the federal loans, so when you apply to Nova Scotia for funding, you’re automatically applying for federal loans and grants as well. Your future payments will also be combined so you can pay both off at once.
The maximum amount you can receive from Nova Scotia is $200 per week of study, which comes out to $6,800 per 8-month school year. This is given to you as 40% loan, 60% non-repayable grant.
Interest on your Nova Scotia student loan
If you stay a Nova Scotian resident after graduation, you’re eligible to apply for 0% interest rate on the portion of your loan provided to you by the province.
If you don’t qualify, then your Nova Scotian loans gain the same amount of interest as your federal loans, but it only starts accumulating 6 months after you stop school.
More information here.
Nunavut student loans
If you live in Nunavut, you can apply for the provincial loans but aren’t eligible for federal loans. What loans and grants you can get depends on how long you’ve been living in Nunavut and how much schooling you’ve had there.
There are 2 types of provincial loans in Nunavut – primary (for cost of living) and needs assessed (for tuition and other schooling fees).
Primary is up to $3,200 per year for 3 years, which is about $94 per week of study. The needs assessed loan can be up to $165 per week of study, which is $5,610 per 8-month school year.
Interest on your Nunavut student loan
If you qualify for a primary loan and return to Nunavut to work after school, you can have your loans forgiven. Basically they’ll turn into grants if you stay in the territory.
For needs assessed loans, the interest rate is fixed at 1% below the prime rate. You need to start paying it back on the first day of the seventh month after you finish school.
Check out some more information here.
Ontario student loans
If you’re a resident of Ontario, you automatically apply for federal loans when you apply for the Ontario Student Assistance Program (OSAP).
The maximum amount of funding you can receive depends on your school, your workload, and other aspects of your situation. But the overall maximum is $395 per week in study, or $670 if you have dependents. This works out to $13,430 or $22,780 per 8-month school year.
Interest on your Ontario student loan
The interest rate for the portion of your loan provided by Ontario is floating at prime + 1%.
Your monthly payments will stay the same throughout your repayment period, but your principal (the amount you owe) may change along with the prime rate.
Find out more information here.
Prince Edward Island student loans
As a resident of Prince Edward Island, you can apply for provincial loans alongside the federal loans.
The maximum amount you can receive from your province is $180 per week of study, which is $6,120 per 8-month school year.
Interest on your Prince Edward Island student loan
You don’t have to pay interest on the provincial portion of your loan, and you only have to start paying it off 12 months after your last day of school.
Some more info here.
Quebec student loans
If you’re a resident of Quebec, you’re not eligible for federal loans. Your only government loan option is through the province of Quebec, up to a lifetime maximum of $55,000 in debt ($70,000 if you’re studying outside of Canada).
Interest on your Quebec student loans
You have to start paying back your loan 6 months after you leave school, but it starts accumulating interest 1 month after your last day of school.
During this 6-month payment-free period, you can either choose to add the interest to your principal (the full amount you owe), or you can pay off the interest.
Once 6 months is up, you have to start paying your loan (the principal + interest).
Your interest rate can be a floating rate at prime business rate + 0.50%. Or you can decide on a fixed rate with the financial institution you’re being funded by. This will usually end up being the mortgage rate the institution offers on its longest term.
Here‘s more information.
Saskatchewan student loans
Saskatchewan’s student loans are integrated with the federal loans, so when you apply to one, you’re automatically applying for the other, too. The province’s maximum is the same as the federal maximum – up to $210 per week of study.
Interest on Saskatchewan student loans
Your first loan payment is due on the 1st day of the 7th month after you finished your studies. Before this, you don’t need to pay but your loan will gain interest at the normal rate.
The portion of your loan provided by the province has an interest rate of either prime + 2.5% (fixed) or just prime (floating).
More information here.
Yukon student loans
Yukon doesn’t have any provincial student loans. You’ll have to apply for the federal loans.
What about you?
Are you looking into student loans?
What do you think of having access to a credit card or student line of credit on top of your loans? Would that help you (and your parents…) sleep a bit more soundly at night?
Drop us a note in the comments!