Canadians who graduated in 2020 owed an average of $24,000 in government student loans. If you owed this amount and wanted to be debt-free in five years, you would need to repay $470+ each month—assuming you were lucky enough to avoid interest.

Owing tens of thousands of dollars is no joke. This guide introduces everything I wish I knew before I accepted the responsibility of student debt. To make smart choices, you need to understand how the student loan system works, how it varies by province and territory, and what your options are for repayment. This guide also covers what international students should know, and introduces lines of credit as an alternative source of financing.

The average amount of student debt increases to $28,000 when accounting for debt from non-government sources. It is actually positive that such a small portion of this student debt belongs to non-government lenders. This means that fewer people are dealing with the higher interest rates that come from privatized borrowing such as student lines of credit. 

Government loans have some of the most favourable interest rates for borrowers, and federally funded student loans are interest-free. We always recommend students apply for government loans regardless of your situation. You can learn about leveraging these favourable interest rates in our guide to graduating debt free. 

Even if you are in a province that has eliminated student loan interest on the provincially-funded loans (British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador) you will need to make payments on time once you are finished your post-secondary. Most provinces and territories require you to start making payments six months after you finish school. If you fail to understand the system and miss payments, you risk harming your credit score and future ability to apply for student loans. 

How The National Student Loans System Works 

With the exception of residents of Nunavut, the Northwest Territories, and Quebec, students from all provinces interact with the National Student Loan Service Centre. In most provinces, you will apply for student aid through your province’s portal, and automatically also apply for funding from the National Student Loan Service Centre. 

The National Student Loans Service Centre recommends students apply for their loans at least two months before the start of one’s program, but provinces give varying amounts of wiggle room on this. For example, in British Columbia, you can apply for your loans any time before the last six weeks before your study program ends. 

In most provinces, you do not need to prove you are accepted into your program before applying for student loans, but the government will check you are enrolled before giving you the money. 

Government student loans are typically reserved for Canadian citizens and permanent residents, but some other protected immigrants such as refugees are also eligible. 

Throughout the application process, you will need to: 

• Ensure you are (or will be) attending an accredited or designated institution that is eligible for student loan funding. You can check this on your province or territory’s student aid website. If you are going to attend university outside of Canada, you may need to check a third-party list that your province accepts for determining which institutions are eligible for funding. 
• Have your household’s financial information on hand. Most of the time, you can simply use the previous year’s income tax as documentation. 
• Have your Social Insurance Number on hand. If you do not already have a SIN number, you should apply for one. 

When you apply for student loans and aid through your province, you will also be automatically assessed for the Canada Student Grant for Full Time Studies. Depending on your family’s income, this grant can make a huge difference. 

For example, if your family of four people earns a household income of less than $70,859 per year, you are eligible for an annual grant of up to $4,200. If your family of four earns somewhere between that amount and $134,369 per year, you will still be eligible for a smaller amount of national grant funding. Unlike loans, you will not repay grant funding. 

You should also be aware of Repayment Assistant Plans, which can help you manage your nationally-funded debt if you are struggling with payments.

Student Loan Interest by Province and Territory 

The provincial portion of your funding will accrue interest one your grace period is over if you are a resident of Alberta, Saskatchewan, Quebec, Northwest Territories, Nunavut or Yukon. There are a few terms you need to know: 

• Prime rate: the percentage of annual interest prime mortgages accrue at the big banks. You need to know this because most student debt interest is tied to the prime rate of interest. The prime rate is almost always based on the Bank of Canada’s (our central bank) preferential interest rate. 
• Fixed vs variable or “floating” interest: fixed loans have one stable agreed-upon rate of interest, while variable (or floating) interest rates go up or down with the prime rate of interest. 

Let’s say you need to make a monthly payment on your floating loan which is tied to the prime rate of interest. You learn the current prime interest rate is 7.20 per cent. This means your total debt would increase by 7.20 per cent in a year, assuming that interest rates would stay the same (which they won’t). As the interest rate goes up or down, the amount of monthly interest you must pay will vary with it. 

Alberta: 

The provincial loans you have will accrue the prime rate of interest on a daily basis, and be calculated on a monthly basis. Alberta Student Aid instructs you to check the CIBC posted prime rate to know the percentage of which your debt will increase annually. 

For Alberta student loans starting after July 1, 2023, you will just need to pay the prime rate of interest. This is sometimes called a floating loan or variable interest rate, because it changes as interest rates rise or fall. For loans from before that date, you will either have to pay whatever interest the prime rate adds plus one or two per cent, depending on if your loan had fixed or variable interest. 

Your interest will begin to accrue six months after you are finished studying. Some medical residents and Armed Forces Reservists are eligible to extend their grace period of interest-free status. 

Saskatchewan: 

The interest you pay will automatically have a floating interest rate. However, you will have a one-time opportunity to switch over your provincially-funded debt to a fixed rate loan.

If you choose to do this, you have the security of knowing exactly how much interest you will accrue each month. However, you will be responsible for the prime interest rate at the time of the fixed loan, plus an additional 2.5 per cent. While you have less risk with a fixed loan, you will be responsible for interest that adds up faster than if you chose to stay with a floating interest rate. 

Although you do not need to begin paying your loans until six months after you finish studying, unlike Alberta, your interest will begin to accrue as soon as you are finished your study period. You should at least begin paying your interest as soon as possible. 

Saskatchewan has special loan forgiveness programs for nurses, nurse practitioners and veterinary care professionals. 

Quebec: 

Quebec’s system is a bit unique and is not harmonized with the National Student Loan Service Centre. Your provincially-supported student debt will be owned by a bank when you graduate. 

Your interest rate will be the Bank of Canada’s preferential rate plus 0.5 per cent. Your interest will begin to accrue the month after you have finished your full-time studies.

Once you have graduated, you have a grace period of six months before you are responsible for paying your loan’s principal (the amount you borrowed). However, you should contact the bank that has your loan to at least begin making payments on the interest as soon as you graduate. 

Since your debt will be held by a bank, you can consider negotiating a fixed rate of interest for your loan. However, there is no guarantee you will receive that option. Remember, the security of having a fixed interest rate usually comes at the cost of a higher interest rate. 

If you completed a program as a full time student, you may be eligible for a special loan remission program Quebec offers its graduates. 

Ontario: 

Interest will not accrue during the six month grace period after you are done your study period. During this time, you do not need to worry about any payments. However, after six months, your provincially-funded student loan will accrue interest at the prime rate plus one per cent. You do not have the option of applying for a fixed interest rate for provincially-funded loans. 

Yukon: 

Yukon’s student aid system offers grants, scholarships, training allowances and bursaries. Your eligibility for this aid as a Yukon resident will vary depending on the kind of program you are enrolled in. 

Yukon’s student aid is not a harmonized system with the National Student Loan Service Centre. However, Yukon’s financial assistance program directs part and full-time students to apply for loans from the federal government in a separate application from any territorial aid. 

Although Yukon has technically not eliminated provincial student loan interest, most students from Yukon will not encounter interest on their student debt. 

Northwest Territories: 

If you live in the Northwest Territories, like Yukon, you should check if your program choice and economic status makes you eligible for the diverse grant, bursary and remissible loan (loan you do not have to pay back). 

Since the Northwest Territories also offers a repayable loan of up to $1,400 per month of study, you will begin to pay interest on this loan six months after you are done being a full-time student. Your rate of interest will be one per cent less than the Bank of Canada’s prime rate. You can discuss your specific payment plan with your finance officer. 

The Northwest Territories offers incentives for students who continue to reside in the territory after they are done studying. If you attend school outside of the territory and then return home after your study period, you may be eligible for benefits including a loan remission or no-interest status. 

Nunavut: 

Nunavut’s financial aid system offers a range of grants and scholarships to eligible students. Like with the Northwest Territories, Nunavut’s student loan funding also accrues one per cent less interest than the Bank of Canada’s prime rate. Your loan will begin to accrue interest sic months after you are finished your period of study. 

If you have been a resident of Nunavut for more than a decade and come back to work in the territory after finishing your study period, you will be eligible for a special loan forgiveness program. 

Funding For International Students 

International students are ineligible for many of the government funding options available to Canadians and permanent residents. However, the government does make specific scholarships available to international students. 

If scholarships, bursaries and your family’s help is not enough to cover the cost of your schooling, you can consider a private loan. However, private educational loans are typically far less forgiving than government-funded student loans. 

You need to be especially cautious before signing any documents agreeing to take on a loan. Consider the interest rates carefully and how fast your interest compounds. 

Read the disclosure agreement your lender will provide you carefully. Sometimes “grace periods” and “interest-only periods” can be unclear to people who are less familiar with financing. All reputable banks lending to students should be patient with any questions you have about your disclosure agreement. Do not be afraid to ask these questions. 

If you have an interest-only grace period before you have to begin paying back the principal amount you borrowed, keep in mind that your principal will likely continue to accrue interest the whole time you are allowed to make interest-only payments. The more principal debt you have, the more interest you will have to pay each time your interest compounds! 

You may need a Canadian to co-sign on a private loan for you, but you can also ask around to see if a lender will agree to waive the co-sign requirement if you can document your enrollment in a Canadian university. Most reputable banks will note if you need a co-signer in the brochure or webpage explaining how a given loan works. 

Lines of Credit

One of the most flexible ways that international students and post-graduate students can close educational funding gaps is a student line of credit. Private lenders, like banks, give these out.

Instead of loaning you a lump sum, the bank will give you a range of amounts you can borrow from. A line of credit is like a pool of money you can borrow from as needed, and you will only need to repay what you borrowed (plus interest and any fees). 

If you are approved for a line of credit up to $20,000, and you only needed to borrow $11,000 for tuition fees, you would still be able to go back and borrow up to $9,000 more when you encounter new expenses. However, if you never needed to borrow the remaining $9,000, it will not be added to the principal amount you will need to repay. 

This is a good option for students who need to access a large amount of funds and expect a good return on investment for their education. There are even some specialized line of credit programs for students in dentistry, medical or law school. 

Like with my general warning about private student loans for international students, I recommend considering a line of credit very carefully. Do you really need it, or would studying part-time while working be a better option? 

You are going to have to navigate higher interest rates than government loans. If you make a mistake along the way in understanding how interest compounds or overestimate your early-career earnings, you may find yourself in serious financial trouble. Ultimately, you should only consider a line of credit if you have the knowledge and life experience to evaluate your risk and manage repayment properly.