The federal government is set to lower student loan interest rates and make the six-month grace period following graduation interest-free, according to its 2019 budget released March 19. The budget also provides financial support for students who are on parental leave, increases job placement availabilities for students, and provides additional funds to attract more foreign students to Canada.
The federal government has reduced the floating student loan interest rate to the prime rate, from its current 2.5 per cent over prime. The fixed interest rate will be reduced to prime plus two per cent from the current prime plus five per cent. Most student loan recipients use the floating interest rate, which fluctuates, as opposed to the fixed interest rate, which remains constant for the duration of the loan. The prime rate refers to the annual interest rate that major financial institutions set.
These cuts are expected to cost the federal government $1.7 billion over the next five years. The budget predicts that the average student will consequently save approximately $2,000 over the period of their loan.
Currently, during the grace period, Ontario students who use the Ontario Student Assistance Program (OSAP) are not charged the one per cent over prime interest rates for the provincial portion of their loans, but the federal portion of loans begin accumulating interest immediately following graduation.
The Ontario Progressive Conservatives’ OSAP reconfigurations earlier this year eliminated the interest-free grace period for the provincial portion of student loans. This means that the statuses of the federal and provincial portions of OSAP loans have effectively swapped. Perhaps ironically, one of the stated reasons the Ontario government made changes to OSAP was to “align Ontario’s repayment terms with that of the federal government… to reduce complexity for students.”
The federal government is also set to implement interest- and payment-free leave for students using OSAP who are on temporary leave from university due to medical or parental reasons, including mental health leave. These can be used in six-month periods for up to 18 months total.
Additionally, the budget proposes increases in compensation to provinces and territories by $20 million over five years. This compensation will be used to supplement provincial student aid systems, like OSAP.
The federal government is also set to invest $15 million to support students with loans who have disabilities or are in “vulnerable financial or life situations.”
Sweeping changes are in store for job- and volunteer-seekers. Initiatives to create 15,000 service placements, connect 90,000 young people with jobs, add 84,000 new work placements by 2023–2024, and provide five years of support to 1,000 entrepreneurs will cost the federal government a total of $1.2 billion.
The federal government has also proposed an additional investment of $37.4 million over five years to expand parental leave coverage for postsecondary students and postdoctoral fellows. It also expands coverage from six months to 12. The budget notes that these expansions “will further improve equity and inclusion in research.”
Over five years, $147.9 million of the budget will also be used to develop a new International Education Strategy. Part of these funds will go toward developing “an outbound student mobility program” for students who pursue studies or work abroad, while the other part will “ensure that top-tier foreign students continue to choose Canada as their education destination of choice.”
University of Toronto President Meric Gertler praised the announced expansion of master’s and doctoral scholarship awards and mobility programs. “These investments in experiential learning are investments in Canada’s future,” he said.
“The investments are good news because they will drive economic growth by giving Canadians the skills they need to succeed. They will enhance the success of U of T graduates and others across the country who are entering the labour force.”