Ottawa plans to take a permanent pause during the pandemic a student credit interest in effort to reduce some of the current financial burdens on young Canadians as the cost of living rises.
The federal government outlined the plans as part of its autumn financial update presented on Thursday to constantly eliminate interest on all federal a student loans and education loans, including loans currently being repaid.
Interest rates will still apply to the student’s provincial portion credit.
While the move is good for graduates, said Rebecca Young, director of fiscal and provincial economics at Scotiabank, it’s ultimately a relief for interest debt payments, not money for tuition or other post-secondary expenses.
“In the bigger picture, they’re still facing increased costs across the board,” she said.
More than 1.8 million Canadian students owe the federal government a total of $20.5 billion, according to data from the Government of Canada website for 2019, with an average credit balance of about $13,367 at graduation.
As of 2022, the average undergraduate tuition is $6,482 per academic year. to Statistics Canada, while the average graduate tuition fee is $7,053 as of 2022.
The Liberal government suspended the accrual of interest on a student loans in 2021 to the consequences of the pandemic for graduates as they enter the unique labor market. The measure was appointed to expires in March.
Liquidation interest will begin on April 1, 2023, according to the financial update.
On average a student credit the borrower will save $410 per year as a result of them credit creature interest– free of charge, the government said in a financial update. (A student credit interest calculated either at a fixed rate of 2 per cent plus prime or at a variable rate equal to to base rate.)
Liquidation interest on these loans is evaluated to a cost of $2.7 billion over five years and $556.3 million currently, according to the federal government.
Permanent elimination interest on federal a student loans were a campaign promise of the Liberals during the last federal election.
Young said some may fear the decision could stoke inflation, but that’s not a particularly strong argument because the measure is relatively small and discreet.
Ottawa said that graduates will still be able to to use its repayment assistance plan, allowing them to a pause a student credit repayment until they earn at least $40,000 a year, and reduced payments for those who earn slightly more than that amount.
Earlier this week, the zero-payout income threshold for a student loans increased from $25,000 to $40,000 for a single-person household. The threshold increases depending on the size of the household.
This move to tackle a student The loans come just months after US President Joe Biden announced a decision to scrap the $10,000 for most a student credit borrowers, and up to $20,000 for those borrowers who have received a federal Pell Grant. This received considerable backlash.
On Thursday, the White House said it had already approved 16 million requests. It’s close to 26 million Americans applied a student credit forgiveness