Canada scraps interest on federal student loans

The Canadian government is scrapping interest on federal student loans, saving borrowers more than C$500 million (£320 million) annually, as part of a wider strategy by the Trudeau government to ease economic pressures across the country.

The move, which makes permanent a Covid-era suspension of interest accumulation, was presented by the government among a series of steps it is taking to confront rising inflation and fears of economic recession.

“This is a challenging time for so many of us,” Chrystia Freeland, Canada’s deputy prime minister and minister of finance, said in outlining the initiative.

Canada has more than 1.7 million student borrowers, holding at least C$18 billion in debt, at an average level of about C$26,000, according to the consumer services website Reviewlution. Such figures are a fraction of the situation in the US, where 43 million borrowers have more than $1.6 trillion in debt while awaiting the outcome of legal battles over the Biden administration’s new student loan forgiveness programme.

As with the more aggressive US plan, the Trudeau administration programme to end interest accumulation is being met with a mixture of praise from borrowers, criticism from conservatives and concern among progressives that it is a helpful move that nevertheless falls far short of the need for better investment in higher education.

“This is a very small first step towards acknowledging the debt that students bear,” said Erika Shaker, director of the national office of the Canadian Centre for Policy Alternatives. “But it does nothing to address the systemic issue of how the costs of higher education continue to be downloaded on to students and their families, and the resultant personal and public economic and social drag created by graduating a generation into debt.”

But Toronto-based higher education consultant Alex Usher called the initiative a politically motivated “waste of cash” given that federal law already lets low-income borrowers avoid paying interest on student loans. “Just think what the feds could do with a couple of billion dollars more in research spending,” Mr Usher said in a blog he posts at Higher Education Strategy Associates.

Both noted that the Trudeau initiative covers the estimated three-quarters of borrowers with government-backed loans but leaves out the more than a third of student borrowers who used private lenders.

It nevertheless was welcomed by the Canadian Alliance of Student Associations, the nation’s chief student advocacy grouping, as “a welcome change for past, current and future student loan borrowers”.

“This is a monumental investment for students across Canada,” said the association’s chair, Christian Fotang, an undergraduate studying biology and psychology at the University of Alberta.

The Trudeau government estimated that the permanent interest waiver would cost about C$2.7 billion for the first five years and C$556 million a year after that.

The government, in its Fall Economic Statement, also announced plans to spend C$300 million over two years on a youth employment and skills training strategy, C$400 million over two years on a youth summer jobs programme, and C$50 million in the current year to speed visa processing times.

paul.basken@timeshighereducation.com