With Reduced Interest Rates, Are Student Loans More Affordable?

Beth Graddon & Walter Harder

As promised in the 2019 federal budget, interest rates on Canada Student Loans are decreasing. Will this help affordability for students investing in their education? The answer is yes, but not immediately.

It’s on November 1, 2019, that the variable and fixed interest rates on Canada Student Loans and Canada Apprentice Loans will be reduced . The variable rate will be reduced to prime (from prime plus 2.5%) and the fixed rate will be reduced to prime plus 2%(from prime plus 5%).

Some additional good news: interest will no longer accrue on Canada Student Loans and on Canada Apprentice Loans during the six-month non-repayment period immediately following studies or the end of an apprenticeship.

On January 1, 2020, borrowers will also have a new option to rehabilitate Canada Student Loans and Canada Apprentice Loans in default. They will have the option to add their interest to the principal of their loan (capitalize the interest) and make two payments to rehabilitate their loan.

What does this mean for Canadians with current Canada Student Loans? Assuming that the prime rate remains at the current 3.95%, the new rules will reduce the rate on the fixed-rate loans from 8.95% of 5.95% and on variable rate loans, the rate will be reduced from 6.45% to 3.95%.

The example below shows the results of an existing loan with an outstanding balance of $40,000 with a remaining repayment period of five years. The table assumes that all loan payments are made on time and no lump sum payments are made.


 Payment Amt. 

 Total interest 

 Interest cost of fixed rate loan under previous scheme (8.95%)



 Interest cost of fixed-rate loan under new schemes (5.95%)







 Interest cost of variable rate loan under previous scheme (6.45%)



 Interest cost of variable-rate loan under new schemes (3.95%)






The interest rate reduction will mean that those with loans will need to make a smaller monthly payment – keeping more money in their pockets. However, it’s over the life of the loan that the interest savings will be more significantly felt.

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