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Find out about student loans
Borrow wisely and affordably to pay for your university or college education.
Unfortunately, figuring out how to pay for school or dealing with student debt after graduation is becoming more commonplace. Unless you get a full scholarship, your loans aren’t going anywhere. However, you don’t have to damage your finances forever in order to pay for an education.
We walk you through how student loans work – from borrowing while in school, to repaying once you graduate, to refinancing your loans down the road. Use our guide to find the best financing option for you.
What’s your goal today?
Getting a student loan while in university or college
Government vs private student loans
While government student loans, also known as Canada Student Loans, come with many different benefits, some students still opt to choose private lenders or decide to go with both government and private loans. Find out about the key differences in the table below:
| Government loans (Canada Student Loans) | Private loans | |
|---|---|---|
| When does interest kick in? | Interest is not paid until you graduate or leave post-secondary education, or until you reach your lifetime limit for assistance. | Immediately. Interest will accrue from the moment you take out your loan. |
| How soon do I have to start paying the loan back? | Six months after graduating or leaving post-secondary education or if you leave school for six months or longer or switch to part-time studies. | Immediately. Repayments will begin as soon as you take out your loan. |
| Cosigner needed? | Usually this is not required. | This may be required. |
| What help is available if I can’t afford my repayments? | Some forms of repayment assistance are available including temporary relief on paying interest, reduced or no monthly repayments or loan forgiveness. | Help will vary between different lenders. You may be able to seek some assistance, however it will likely be difficult. |
What is the Canada Student Loans interest rate?
As of August 2018, students who receive government loans issued on or after 1 August 1995 face the following rates:
- The fixed interest rate is: prime + 5%
- The floating or variable interest rate is prime: + 2.5%
What type of student loan should I get?
You have two options when you’re looking for a loan to pay for school: government loans or private loans.
- Government student loans are funded by the government, which sets interest rates and offer flexible repayment plans and benefits.
- Private student loans are funded by providers like banks, credit unions and online lenders, which charge a range of interest rates based on your creditworthiness.
Typically, both private and government lenders recommend that students apply for government loans first, since they offer more favourable repayment options while you’re in post-secondary education. However, there’s a limit to how long you can receive government funding for – and how you can use it.
You might benefit from private student loans if you…
- Have good to excellent credit
- Are enrolled in school full-time
- Reached your limit for government loans
Government student loans might not be able to cover all of the costs associated with your education. You might want to look into borrowing from private lenders to pick up where your government loans fall short.
You might want to look into both government and private financing if you…
- Have good to excellent credit
- Need to finance a study abroad semester
- Haven’t reached your limit for government loans
It’s possible you might benefit from government loans before you turn to private lenders. But it’s also possible they won’t cover all of your expenses, especially living expenses such as residence fees and meal plans. Consider talking with your school’s financial aid office to set up a meeting to discuss your next step.
Consider federal loans or other financial aid if you…
- Have bad or no credit
- Are enrolled in school part-time
- Haven’t reached your limit for government loans
You might find it difficult to qualify for a private student loan. Government student loans and other forms of financial aid, like scholarships and grants, might be a better option for your particular situation.
How government and private student loans work
Government student loans generally attract lower interest rates than private student loans, but there’s a limit to how long you can borrow money for and what you can use it for. Students typically turn to private student loans after they’ve maxed out their government loans.
Here’s how government loans stack up against private loans:
| Government student loans | Private student loans | |
|---|---|---|
| Purpose | Education-related expenses directly related to school. | Education-related expenses, including some other costs closely related with education. |
| Who it’s best for | Any eligible student. | Students who’ve already used up their government loans, can’t qualify for government loans or need funding for other expenses. |
| Eligibility requirements | You must:
| You or your cosigner must:
|
| Interest rate | This is set by the Government of Canada and in August 2018 sat at:
| Varies between lenders, but some lenders will charge prime minus 0.25%. |
| Cosigner | Not required for most government loans. | Required for students who are younger than 18 and don’t meet the lender’s credit, income or legal residency requirements. |
| Lifetime limits |
| Varies by lender, though many let you borrow up to 100% of your school’s tuition and fees. |
How do I find a competitive private student loan?
Ask yourself the following six questions when comparing private student loan options:
What's a cosigner and do I need one?
A cosigner is another individual – usually a parent or relative – who signs your loan documents with you. Cosigners essentially act to reassure the lender that it’ll get its repayments on time.Many lenders recommend, or sometimes require, that undergraduate borrowers apply with a cosigner. But you might want to consider a cosigner even if it isn’t required. That’s because most lenders have minimum credit requirements that most post-secondary students can’t meet – usually a minimum credit score of at least 650 and a debt-to-income ratio below 43%.
How do I apply for a private student loan?
While the application process can vary between lenders, many follow a similar process. Before you start your application, make sure you have all of the documents you need on hand.
Common documents needed include:
- Identification
- Proof of attendance at your school (such as an admissions letter)
- A letter detailing your financial aid award from your school (if any)
Applications also vary depending on how they treat cosigners. Depending on your lender, you might have to fill out your application with your cosigner, or they might have separate applications to themselves. Some lenders even require borrowers to meet credit requirements themselves and only allow cosigners to help them qualify for more competitive interest rates.
After your finish your application, make sure to read it over before hitting submit – making a mistake is an easy way to get rejected.
Alternative ways to pay for school
Student loans aren’t the only way to pay for post-secondary education. If you’re not certain you want to take on a student loan, look into the following financial aid alternatives.
Grants and scholarships
The federal government, provincial and territorial governments, schools and corporations offer grants and scholarships to students that you usually don’t have to repay.
Grants are often based on need, meaning they’re available to students who can demonstrate financial hardship. Scholarships are usually merit-based, awarded for high grades or for doing well in a specific field like sports or art. Outside of need and merit, you can find both scholarships and grants for members of underrepresented groups and specific career paths.
Since it’s rare for grants or scholarships to cover your full tuition, they’re most often used in combination with other financial aid.
Part-time job or side gigs
You likely can’t cover the cost of tuition with most part-time jobs. However, you might be able to cover part of your housing, textbooks and spending money. Bonus points if you find a job in your field to get a head start on your career.
Don’t have time for that kind of commitment? Take on small side gigs when you have the time, like acting as an usher at live performances or working a stall at a local market. These gigs might not always cover your entire rent, but they can keep more money in your pocket.
Personal loans
You can use a personal loan to pay for post-secondary education, although you might not want to foot the entire bill with one. Personal loans are typically better for covering extra costs like flying back home for the summer, relocating for an internship and similar expenses that come with being in school.
You can typically borrow between $2,000 and $35,000 with rates that compare to private student loans. However, you often need good credit to qualify, and cosigners aren’t always allowed. Repayments also start immediately.
Refinancing your student loans
Benefits of refinancing
Simply put, refinancing your student loan means taking out a new loan to replace your current one. Why would you do this? Refinancing can help you save now and in the future by finding a new loan with a lower interest rate, different repayment terms or a different time frame to pay your loan back.
- Refinancing with a lower APR can help you save on your total loan cost by reducing how much you pay in interest and fees.
- Refinancing with a longer loan term can reduce your monthly repayments by extending the time you have to pay off your debt. On the flip side, longer loan terms can increase how much interest you pay in the long run. You might want to look for a loan with both a lower APR and longer term if you’re interested in lowering your monthly repayments.
Requirements to refinance
To refinance your student loan, you will usually need to meet a few basic requirements. These typically include:
- Have a good credit score of 650 or above
- Have proof of a steady income
- Be a Canadian citizen or a permanent resident with a valid Canadian address
- Have a working bank account
Find out how to compare student loan refinancing offers
When it’s best to refinance student loans
You’ve probably seen ads online about student loan refinancing being a smart financial move, but this isn’t always the case. So, is it the right choice for you? Here’s our take based on three likely scenarios:
You could benefit from refinancing your student loans if you have…
- Private or both private and government student loans
- A steady full-time job
- Excellent credit score
You might be able to qualify for student loan refinancing with lower interest rates and more favourable terms than your current student loan if your credit score is great and you have a steady source of income that likely makes you a strong applicant.
Think carefully about refinancing if you have government student loans. You could stand to lose key benefits like tax deductions, flexible terms, term extensions and income-driven repayment plans.
You could benefit from refinancing, but will likely need a cosigner if you have…
- Private or both private and government student loans
- A new job
- Fair to excellent credit
- More student debt than annual income
There’s a chance you could qualify for refinancing on your own, but taking on a cosigner with a stronger credit rating, less debt or a longer work history might strengthen your application, resulting in a lower interest rate and more favourable loan terms.
If you have government student loans, think carefully about refinancing. You could be giving up valuable benefits like tax deductions, flexible terms, term extensions and income-driven repayment plans.
You might want to hold off on refinancing for now if you have…
- Government student loans only
- Bad credit
- More student debt than annual income
You might want to wait until you have a better credit score, a higher income or more work experience before you consider refinancing your student loans.
Since you have government loans, you might not be able to get much out of refinancing. By refinancing, you’ll lose access to several key benefits that could help make your student loan debt more affordable, such as tax deductions, flexible terms, term extensions and income-driven repayment plans.
Can I refinance my government loans?
You can, but it might not be the best idea. When you refinance your government loans with a private lender, you give up several key benefits that include tax deductions, flexible terms, term extensions and income-driven repayment plans.
Government loans also generally come with some of the lowest interest rates out there – and you may have the choice between a fixed rate or a floating (variable) rate. Chances are, you might not be able to find a better deal with refinancing.
Repaying student debt: debt repayment plans
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What happens after I take out a student loan?
Unlike other types of debt, student loans come with several repayment options. Immediately after you take out your student loans, you might start making full repayments, interest-only repayments or none at all if you’re lucky enough to get a government loan.
When your funds are disbursed and you graduate
What happens after you take out your student loan depends on the type of student loan you have.
Repayment assistance
If you can’t make your loan repayments to Canada Student Loans, the following repayment assistance may be beneficial to you:
- Through the Repayment Assistance Plan (RAP), you may qualify for a reduced monthly repayment or no monthly repayment at all.
- If you have a severe permanent disability, you may be eligible to have your loans forgiven through the Severe Permanent Disability Benefit.
- As of August 2018, any graduate who earns less than $25,000 annually will not have to pay back student loans until they earn more than this yearly amount.
- Under the Revision of Terms measure, you can ask to have your student loan repayments decreased if you are unable to repay them. Alternatively, you can ask to have your repayments increased if you wish to pay off your debt faster.
- If your Canada Student Loan is in collections, Canada Student Loan Rehabilitation may be able to help you out.
- You may be eligible for Canada Student Loan Forgiveness for Family Doctors and Nurses if you are working as a family doctor, family medicine resident, nurse or nurse practitioner in an under-served rural or remote community. You’ll need to reach out to the Canada Student Loans department in order to find out more.
Other repayment options
Life happens. You might discover that you’re unable to make repayments on your loan, however there may be options available to you.
Some of the options you might come across for repayments include:
- Forbearance. If you lose your income or simply want to return to school, you might be able to pause your student loan repayments. How long and often you can go into forbearance depends on your loan and lender, but expect interest to continue adding up.
- Deferment. Like forbearance, you can apply to pause your repayments for a legitimate reason. But your interest doesn’t accumulate while you’re in deferment. Some private lenders refer to a loan’s six-month grace period as deferment but don’t offer it after you’ve started making repayments.
- Cosigner release. You can release your cosigner from most student loans after consistent on-time repayments for a specific time, usually a few years. After your cosigner is released, you’ll be fully responsible for your debt.
- Consolidation. You can consolidate your debt at any time. But you’ll want to make sure it’s more affordable than what you’re currently paying. With consolidation, you take out a new loan, preferably with more favourable interest rates and terms, to pay off your student debt. You then repay your new loan with one monthly payment. Keep in mind you will lose any government benefits if you consolidate your Canada Student Loans.
