You could be one of the lucky Canadians that benefit from the recent changes to student loan repayment terms. The Government of Canada changed some of the terms of its Canada Student Financial Assistance Program’s Repayment Assistance Plan (RAP). Repaying your loan may now be easier.
A strong, skilled workforce depends on affordable, accessible education. Subsequently, these changes will help this workforce become reality for more Canadians by offering flexible ways to finance their education.
Why Are Student Loan Repayment Terms Changing?
The Canadian government is committed to education and recognizes how impossible it is for young adults to start a career in the current labour market. This is especially true in big cities.
Carla Qualtrough, Minister of Employment, Workforce Development and Disability Inclusion, explains. “…More graduates can focus on building their careers instead of worrying about student loans.”
How Are Repayment Terms Changing?
The loan terms changed as of Nov. 1, 2022. So, if you are already repaying your student loan, you’ll see changes right away. Here are the main changes to RAP:
- The zero-payment income threshold increased to $40,000 for singles. Now that these new terms are in place, your loan payments don’t even start until you make at least $40,000.
- That $40,000 threshold goes up if you have more people in your household.
- The income threshold is indexed to inflation every year.
- Your payments are cut in half. Max payment amounts used to be 20 percent of a borrower’s household income. Now the max payment is just 10 percent.
- You will only make payments for a maximum of 15 years. Those with disabilities only make payments for 10 years.
What Does This All Mean For Borrowers?
The changes to the Canada student loans repayment assistance plan allow greater flexibility for:
- Current students
- Future students
About 180,000 Canadians will benefit from the changes every year. For those working full-time or part-time or earning less than $40,000, student loan repayment won’t be an excessive burden.
Who’s Eligible For Repayment Assistance?
How do you know if you could have your payments cut in half or even eliminated entirely? You might qualify for student loan repayment help if you:
- Live in Canada
- Are a reservist or a reservist’s spouse deployed abroad
- Are on an international internship that lasts a year or less
- Have a student loan in repayment
- Are up to date on your loan payments
- Earn less than the income threshold
- Have a recognized disability
If approved for the RAP, the Government of Canada will:
- Pay interest on your outstanding loan that reduced payments don’t cover
- Pay both principal and interest after 5 years on RAP or 10 years after you leave school
If you have a disability, the government will pay the principal and interest that reduced payments don’t cover.
One thing to note, the governments of the following provinces have decided to match the federal government’s new terms:
- Newfoundland and Labrador
- New Brunswick
- Nova Scotia
I you live in one of these provinces, check your province’s student loan website for more information.
The Canada Student Financial Assistance Program doesn’t apply to Quebec, the Northwest Territories, or Nunavut. However, these regions receive alternative funding from the federal government for student financial assistance. So, if you live there, check the student loan measures that apply.
If you fit these criteria, you can apply by visiting the National Student Loans Service Centre (NSLSC) website.
Student Loan Quick facts
Student loans are managed differently in Canada than in other parts of the world. Here’s a look at some Canadian student loan quick facts.
- 3 out of 4 students have student loans from the federal and/or provincial government.
- About 1/3 of students have bank loans.
- Undergraduates paid an average of $6,693 on tuition in the 2021/2022 academic year.
- Total government student debt in Canada is $22 billion.
- 1.7 million Canadians have student loans.
- Undergraduates leave school with an average student loan of $28,000. College graduates leave with an average of $15,300
- Medical students have the biggest loans, an average of nearly $84,172. Business school graduates have the least debt.
- Average interest rate for federal and provincial loans is 2.5%.
- Full-time students that meet eligibility criteria can get a Canada Student Grant for up to $6,000 a year. Part-time students can receive $3,600.
- Missing payments impact your credit score.
- CRA collects your federal loans if you miss more than 9 monthly payments.
- The average student loan takes 9 to 15 years to pay off.
- in Ontario, almost one in five insolvencies, in 2019 was due to student loan debt.
- If you file for bankruptcy, you can get debt relief once you have been out of school for 7 years.
The changes to the student loan repayment terms are significant. Without a doubt, many say they have been a long time coming. If you’ve struggled to make your student loan payments, and qualify, these changes will make a big difference.
For those Canadians struggling with more than just student loan debt or don’t qualify to take advantage of these new terms, there’s still help available. Please get in touch with us if you’d like options for managing your consumer debt. A credit counsellor will help you make a plan to get back on track.