Canada’s Student Loan Rates Compared (2013-2014)
As mentioned in my last blog, Canada’s federal (and most provincial) governments reap a hidden tax from the low and middle-income students who need to borrow student loans.
These governments borrow money at a discount (at least 1% below the ‘prime’ rate). At present, that lets them borrow at 2% or less. Then they charge up to 400% more on student loans.
Result? A large, hidden wealth transfer from financially-strapped new grads.
There is some good news, though.
In recent years, most provinces have cut their interest charges on student loans. The average drop has been just over 2 percent.
A few percentage points, you say? Does that really make a difference?
You bet it does. If you have an average-sized student debt (about $27,000 and rising) that kind of rate cut could save you thousands of dollars.
And you’re way ahead if your government makes student loans interest free! (Special call-out here for Newfoundland & Labrador, since it was the first – by several years – to go interest-free!)
Before you read the chart, here are some important points…
These interest-rate cuts only apply to the provincial part of your student loans. Provinces can’t force the federal government to lower its rates too. Only voters can do that!
So you only save on the provincial part of your loan, which is normally 40% of your total government loan amount.
If you have an integrated federal-provincial loan, you’ll probably pay a higher interest rate than you see in the chart below. That’s because its been ‘blended’ with the federal rate.
Don’t worry – a rate cut in an ‘integrated’ province reduces the same 40% of the loan – unless you have older loans that don’t qualify. (Ask your lenders.)
Final point: The list below compares only “floating” (variable) rates, which are most common these days. That was only to avoid confusion, since provinces such as Ontario, PEI and Newfoundland & Labrador no longer offer ‘fixed-rate’ loans. Of course, you don’t need to worry about this fixed-rate, floating rate stuff if you get your loans in an interest-free province.
But in provinces that still have them, ‘fixed-rate’ student loans really increase the price that you see in the chart below.
If you get a fixed-rate student loan:
Alberta charges you 2% more than in the chart below. B.C., Saskatchewan, Nova Scotia and New Brunswick charge you 2.5% more. Manitoba charges you 4% more than in the chart.
Fixed-rate loans and older loans with extra-high rates are where the government really rakes it in!
Okay, enough about loan types. Drum-roll, please….
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From Best to Worst: Canada’s Student Loan Interest Rates (Floating- Rate Loans Only)
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Interest-free! Zero! Nada! Canada’s Best!
Newfoundland & Labrador: (Began: August 1, 2009)
Prince Edward Island: (Began: October 1, 2012. For loans after January 1, 2001.)
Nova Scotia: (Beginning 2014 for provincial loans entering repayment no earlier than November 1, 2007.)
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Prime Rate (now 3%)
Alberta
Saskatchewan
Manitoba
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Prime + 0.5 (now 3.5%)
Quebec
Nova Scotia (for loans not meeting interest-free status above)
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Prime + 1% (now 4%)
Ontario
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Prime + 2.5% (now 5.5% *) Canada’s Worst!
Canada (Canada Student Loans)
British Columbia (BC)
New Brunswick (NB)
(* Fixed-rate student loans from Canada, BC and NB cost prime +5%. This now adds up to 8% but will be higher for some older loans)
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Northern Territories
1. Yukon uses only Canada Student Loans (Prime + 2.5%)
2. NWT and Nunavut are heavily grant-based and not comparable.
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Final thoughts…
Congrats to students in Newfoundland & Labrador, PEI and recent grads in Nova Scotia. When it comes to interest rates, you’re way out front. Students in the 2nd-cheapest regions (the 3 Prairie provinces) pay 3% more at the current prime rate.
Canada’s 3 interest-free provinces do what some countries do abroad. They subsidize their student loans to encourage the higher education that grows their economy. If you’re a New Zealand student, for example, your student loans are interest-free.
Maybe we’ll soon see more interest-free student loans in Canada. They’re a welcome contrast to the current ‘soak-our-students’ approach.
© Jeannine Mitchell 2013-2014
