The latest Statistics Canada report shows that the cost of post-secondary education in Canada rose by an additional 2.6% in 2022, making it the fourth consecutive annual increase.
The average cost of tuition in Canada is now $6,834. Thanks to student loans in Canada, most students don’t have to pay all of that money upfront.
Student loans can be obtained from the government or from private lenders and can help students cover some or all of their education costs, including tuition, books, supplies, housing, and even everyday living expenses.
Below, I’ll explain a bit more about how student loans work in Canada, what your options are, and how to manage your debt so that it doesn’t end up hurting you.
The first debt that many Canadians incur is student loans. Often, students begin applying for education loans as part of their university application process and may obtain funds as soon as they come of age.
Unlike primary and secondary schools, where education is largely free, attending post-secondary school is an investment. Students invest their time, energy, and money in order to learn a skill and build a profitable career path for themselves.
Just like any other investment, a university education isn’t free.
Depending on where you’re attending and what type of education you’re receiving, your annual tuition could be anywhere from $6,000 to receive your bachelor’s degree to over $20,000 to pursue an advanced degree or specialized training.
Universities are large institutions that have to cover their own costs, including:
- Paying professors (who are generally well-paid)
- Paying staff
- Keeping up the property and grounds
- Grants to students
- … and more
That being said, most students aren’t expected to front the cost of their education upfront, as the majority of 18-year-olds don’t have access to that kind of money. This is where student loans come in.
A student loan is a special type of loan that’s issued to individuals who plan on pursuing post-secondary education. The loan is issued on faith that the recipient will use it to fund their education, find gainful employment in their chosen career field, and pay the loan back with interest.
Generally speaking, most students aren’t required to start making payments on their government-issued loans until after they graduate college and find employment. Private student loans may have different terms, though, and can require recipients to start making payments prior to graduation (see below).
Student loans differ slightly from traditional bank loans, as they often come with stipulations about how the funds can be used. Of course, this can differ from one loan to the next, depending on whether you’re receiving a federal, provincial, or private student loan.
Typically, though, student loans can be used for any of the following education-related expenses, such as:
- Your annual or quarterly tuition payments
- School supplies (backpacks, notebooks, pencils, etc.)
- Electronics for school (laptop or tablet)
- School trips and travel-abroad programs
- On-campus housing
- Off-campus housing
- Transportation (bus, train, etc.)
- Meals and student meal cards
To get good grades, graduate, and find a career, you’ll need to focus on your education. If you’re too busy working and trying to stay on top of your bills, it can be all too easy to fall behind in your classes, which can set you back financially by causing you to have to pay extra in tuition.
As such, it’s in the lender’s best interest to offer you a loan that can cover more than just tuition. The better your performance in school, the quicker you can graduate, get a job, and start paying the loan back.
When your loans are disbursed, the lender will usually consider the tuition that you have to pay to get your degree and will calculate associated living/education costs based on the institution you’re attending and the region it’s located in.
Then, based on this information, you’ll be pre-approved for a student loan amount designed to cover these costs.
In some cases, a portion of your student loan may be paid upfront to cover tuition costs at the institution you’re attending. Then, the remainder will be disbursed to you to use at your discretion.
Before you start applying for student loans in Canada, you should see what grants you may be eligible to receive first. Unlike loans, student grants do not need to be repaid.
Grants may be funded by private organizations, non-profits, universities, your local province, or the federal government. They’re typically issued to students based on eligibility criteria, based on factors like:
- Financial need
- Ethnicity or native origin
- Grades and scholastic performance
- Athletic ability
- Artistic ability
In addition to major grants issued by the government, private grants are also worth pursuing.
Many large multi-billion-dollar companies operate non-profit organizations that give back by providing free student grants to eligible recipients. For example, large tech companies may offer grants to women who want to pursue a degree in computer science.
It’s also not uncommon for post-secondary institutions to issue athletic scholarships and grants to students, which help them pay for their education in exchange for them agreeing to play sports for the school.
For the most part, a student loan is very similar to a traditional bank loan. When you go to the bank to apply for a loan, they’ll ask you what it’s for, assess your ability to repay the loan and provide you with loan terms that you’re approved for.
The main difference between student loans and traditional bank loans is that the eligibility requirements are usually lower for students than for traditional borrowers. That’s because most students are just turning 18, and many don’t even have a credit score yet.
Student loans issued by the government (either federal or provincial) generally have the lowest eligibility requirements, as the government has less to lose. Private student loans, on the other hand, may require you to have a parent or guardian cosign the loan to cover associated risks.
Student Loan Debt In Canada: By The Numbers
The majority of university students in Canada take on some type of student loan debt. Based on a 2019 report published by Statistics Canada, the average university student accrues $28,000 in debt to obtain their bachelor’s degree. Master’s and doctorate degrees also incur similar loan amounts.
The reason the amount is so high is that student loans are usually issued to cover the entire cost of earning one’s degree. This often means paying for three to five years worth of tuition, books, materials, and associated living expenses.
When it comes to student loans in Canada, you’ll have several different options to choose from, including:
- Canada Student Financial Assistance (CSFA) Program
- Canada Student Grants Program
- Provincial Student Loans
- Private Student Loans
Some students may only apply for one student loan, while other students may apply for multiple loans, allowing them to receive more funds and focus on their education.
Below, I’ll explain a bit more about each type of student loan in Canada so you know what to expect as you begin your loan application process.
The Canada Student Financial Assistance Program (CSFA) is one of the easiest student loans to apply for in Canada. It’s a federally-issued loan designed to help students and applicants from lower and middle-income families. Those with disabilities or dependents in their care may also apply for CSFA aid.
CSFA recipients generally receive a mix of funds from the federal government as well as their local provincial government. The amount you’ll receive differs, depending on the applicant’s need, the cost of tuition at the institution they’re attending, and whether or not they have children to care for.
In addition to pursuing a full-time or part-time education at a post-secondary university, the CSFA can also be applied to apprentices who are pursuing a trade.
To see how much CSFA aid you may be eligible for, you can use the government’s handy CSFA calculator.
Federal student grants are issued as part of the Canadian Financial Assistance Program (CSFA) that I mentioned above. During the student loan application process, you’ll also have the opportunity to apply for student grants, such as:
- Grant for full-time students
- Grant for part-time students
- Grant for students with disabilities (may also help pay for medical equipment)
- Grant for students with dependents
Federal student grants do not need to be paid back to the government, which can help relieve the financial pressure that you’ll otherwise have on your shoulders after graduating.
I recommend applying to as many grants as you can before applying for student loans. The more of your education that you can cover for free, the better off you’ll be in the long run.
In addition to student loans and grants offered by the federal government, students can also apply for certain loans and grants offered by the province they’re in.
Some provinces offer loans to those pursuing a specific degree or certification, while other provinces offer low-interest or even no-interest loans to students.
These provincial loans often benefit the province by helping to build a more educated population.
If you’re not eligible to receive a federal or provincial student loan, then obtaining a private student loan may be your next best option. For the most part, private student loans work the same as a federal student loan and can be used to cover the cost of tuition and other expenses related to your education.
That being said, the loan repayment terms and interest rates may differ. Private student loans typically don’t have the same low-interest rates that federal loans offer and may require you to pay the amount back in a shorter amount of time.
Both private and government-issued student loans make obtaining a university education possible for Canadian students.
Government student loans (issued by federal and provincial governments) usually have the least risk associated with them. However, government loans also come with more restrictions and may not cover all of your education costs.
Many students will apply for federal student loans and grants to help cover the cost of tuition. Then, they’ll also apply for additional private loans to help cover other costs, such as university living expenses, a laptop, etc.
The majority of student loans in Canada come with a 2% to 4% interest rate. Federal student loans typically have lower interest rates, while private student loans may incur up to 5% interest or more, depending on the loan terms.
That being said, some provinces have introduced zero-interest loans. For instance, Ottawa recently voted to remove all interest from student loans to help relieve financial stress on graduates.
The interest rate of the loan may also vary depending on your graduation date. For many student loans, interest won’t start accruing until after the student graduates. This gives them several years to make interest-free payments if they’re working while in school.
Debt Management Tips For Students In Canada
Student loans are a great resource for any Canadian who wants to better their life, pursue an education, and build a life-long career for themselves. The education, experience and connections you’ll gain access to are often well worth taking out a loan for.
However, student loans also shouldn’t be taken lightly.
Ultimately, a student loan is a form of debt, just like any other loan you may receive. If you don’t manage your debt appropriately, you could find yourself in a tough spot after you graduate. Here are a few helpful debt management tips that I learned from my own experience as a student.
The cost and amount of the loan itself often aren’t as important as the value that you can get out of the loan. For example, a loan to attend medical school typically costs more than an MBA. However, most doctors are paid more than MBA recipients, which justifies taking out a larger loan.
That being said, some loans may not offer a good cost-value ratio. For example, a loan to obtain your doctorate degree in history may not have as great of a financial payoff.
Some questions to ask yourself before taking out a loan are:
- How quickly can I find employment in my chosen career field after I graduate?
- How does the tuition of x institution compare to that offered by similar institutions?
- What is the average entry-level salary for the career and major that I’ve chosen?
- Will I be able to start earning good money with a bachelor’s degree, or will I need to pursue a Master’s (and take out more loans) to further my career?
Ultimately, this is subjective and depends on the student, what career they see themselves in, and their individual life goals. Just ensure that you’re taking out your student loan for the right reasons and that you have a plan in place.
Otherwise, you could end up working as an overqualified, underpaid barista while having to pay off your student loan debt at the same time.
Many students take out additional student loans to help them cover their living expenses while they’re attending university. This allows them to focus on their studies instead of trying to balance a part-time job with a busy class schedule.
There’s nothing wrong with this as long as you create a budget for yourself and strictly adhere to it. For example, if you take out a loan with the intention of providing you with a $400/week living allowance, make sure that you’re not spending more than $400 per week.
I can’t count how many of my fellow students would find themselves in a rut after blowing half of their weekly living allowance on a night out at the club. Save your student loan allowance for essentials. If you want to have fun or treat yourself, make sure that you’re doing it with money from a side hustle.
Many student loans don’t start accruing interest until after your expected graduation date. This means that you can start making payments on your loans while you’re still in college.
Once you graduate, you’ll end up paying less money in interest, as you’ll have already started paying down the principal of the loan.
This may go without saying, but dropping out of college with a mountain of student loan debt is probably one of the worst mistakes that you can make as a young adult. When you drop out, your student debt doesn’t just disappear.
At least if you finish your education, you’ll have a degree that can help you earn more money down the road, which will allow you to pay off your student loans quicker.
If you received a student loan from the government, then you probably don’t need to worry about refinancing it, as federal and provincial loan programs generally have the lowest interest rates.
However, if you received a private student loan, you may find yourself paying higher interest than you’d like. At this point, it may be worth refinancing your loan to receive a lower interest rate.
To finish up, here are a few quick answers to some of the most commonly asked questions about student loans in Canada.
It depends on the type of student loan you’re applying for. Federal and provincial student loans typically don’t require applicants to have a cosigner. However, private student loans may require a cosigner as they’re being issued by private banks that have more to lose.
The average amount of time given to Canadian Student Loan Program recipients is ten years. Usually, this ten-year period doesn’t start until after you graduate with your degree. Private loans may come with different terms.
Some provinces have introduced debt forgiveness programs to help their residents eliminate old student loan debt. Additionally, you can also apply for the Repayment Assistance Program (RAP), which can significantly reduce your monthly payments and the amount you owe.
Student loans can help justify the cost of attending university or obtaining a trade education. As long as you complete your education and pursue a career in your field, you should be able to pay your loans back without a problem.
One of the best ways to reduce the amount of interest you owe on your student loan is to start making payments while you’re still in school.
The best way to do this is with a flexible side hustle that doesn’t interfere with your class schedule.
Keep on reading to see my list of the best online side jobs for students next!