Student loan debt: 0% federal loan interest explained

Student loan debt: 0% federal loan interest explained

Canadian federal student loans will be interest-free as of April 1st, 2023. This announcement may help the 50% of Canadian students who graduate with student loans pay down their debt faster and start their careers with a positive financial outlook. To find out how this change could impact student loan payments, check out our answers to these common questions below: 

There are three types of student loans in Canada: federal, provincial, and private. The type of loan(s) you have will determine if this new legislation impacts you. As the announcement implies, only federal student loans will stay at 0% interest. Meaning provincial or private loans will keep the interest rate set by the province or lender you received the loan from. 

Some provinces, like British Columbia, New Brunswick, and Nova Scotia, already have 0% interest rates on their provincial loans, meaning that all government-provided student aid is interest-free in these provinces if you are eligible. To learn more about different types of student funding in Canada, check out our article on “Funding your future”. 

In most provinces, federal and provincial student loans are applied for and deposited in one payment, making it difficult to figure out your loan’s total cost breakdown and terms. To find out how much of your student loan was provided by the federal government, you need to visit the National Student Loans Service Centre (NSLSC) website. There, you can check your current student aid balance, including how much of your loan is federal or provincial. If you are from a province that handles federal and provincial student loans separately, you may have to visit the NSLSC website and your provincial student aid portal. From here, you can see how much of your funding each government provides and its provincial interest rate, if any.  

You shouldn’t see any recent changes on your account if you regularly check in on your student loans. The Canadian government paused interest on federal student loans in April 2020, and this new legislation is simply making that change permanent.  

No, this new legislation will not reduce your monthly payments. The monthly amount you pay toward your student loan is a fixed agreement between you and the federal government based on your total amount owed. As a fixed agreement, you cannot change the amount you pay each month, but with 0% interest, the total amount you pay back will be significantly lower in the long run, thus allowing you to pay off your loan and get out of student debt much faster. 

Any interest your student loan has already collected will not go away. For example, if you finished school before 2020 and began paying back your student loans, any interest you accumulated during that time will still need to be paid. However, you will not gain any further interest on that loan or new federal student loans from this point forward. 

The Canadian government initially made federal student loans 0% as part of its pandemic relief plan, intended to expire on March 31st, 2023. However, they have extended this policy indefinitely, meaning federal student loans will not collect interest for the foreseeable future unless further legislation is introduced. 

Many provinces already have 0% interest student loans, including British Columbia, Nova Scotia, New Brunswick, P.E.I, Manitoba, and Newfoundland and Labrador. Alberta, Ontario, Quebec, Saskatchewan, and all Canadian territories still charge interest on their provincial loans, though several have discussed the possibility of switching to 0% interest. 

If my loan has 0% interest, why should I keep paying? 

Just because your loan doesn’t accumulate interest doesn’t mean you should stop paying it. Student loans are still debt and can impact your financial future if left unpaid. If you ignore your student loans, they could go to collections and result in wage garnishment or even the Canadian government withholding benefits like tax refunds and GST checks. 

Paying your student loans will also reflect positively on your credit report and can help contribute to building a strong credit score that will aid in achieving your future financial goals. 

If you are struggling to pay your student loans, there are several avenues you can pursue to reduce the cost. All provinces take part in the Repayment Assistance Plan. Depending on several factors, like your income, province, and expenses, you might be able to reduce your payments or even have the government repay a portion of your loan with this program. Several provinces also have student loan forgiveness programs where, if you meet certain qualifications, your provincial government may forgive a portion of your student loan, significantly reducing the total owed. 

If none of these options work for you, and you’ve been out of school for at least seven years, debt relief might be the best solution for you. Filing a bankruptcy or consumer proposal with a Licensed Insolvency Trustee can wipe out your student debt and give you a financial fresh start. To learn how the process works and which option is best for you, book your free consultation online or by phone at 1-844-4GT-DEBT.  

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Amer Mustafa

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