The cost of living continues to rise for the average Canadian. Inflation has sent many prices of goods and services skyrocketing. Also, with rising rent and salaries lagging making ends meet is harder than ever. Add on student loan repayment and those entering the workforce are drowning in financial stress before they really even get started.
If you are having trouble repaying your student loans, on Nov. 1st, 2022 the Government of Canada updated repayment terms to be more forgiving. Employment and Social Development Canada was responsible for spearheading the changes to Canada Student Financial Assistance Program’s Repayment Assistance Plan (RAP).
What is RAP?
RAP helps those struggling to make their federal student loan payments. Under this program eligible borrowers can:
- Get student loan interest relief in six-month increments. Every six months borrowers can reapply to extend their interest relief.
- Arrange for a reduced payment. The government will cover any amount of interest not covered by the reduced payment.
- After a borrower has taken part in the RAP for 60 months (or 10 years after finishing school) the government will cover both the principal and interest payments until no longer needed.
What are the new terms for RAP?
As helpful as the RAP has been, times have changed and students needed more and better help. That’s why new terms have been put in place. Here are the changes:
- The biggest change was an increase to the zero-payment income threshold for Canada Student Loans and Canada Apprentice Loans which went from $25,000 to $40,000. This means, borrowers only have to repay their loans once they earn an annual income of at least $40,000. However, the amount is increased based on the borrower’s household income, not individual income.
- The monthly loan payment cap was lowered from 20 percent to 10 percent of a borrower’s household income.
- The eligibility of those with a disability applying for RAP has expanded to include those with prolonged and persistent illnesses.
- Doctors and nurses in rural areas are eligible for $60,000 and $30,000, respectively, in loan forgiveness.
- Student grants were doubled and easier to access during the pandemic, this has been extended until July 2023.
- To ensure eligibility for repayment assistance is aligned with the cost of living, it will be adjusted for inflation annually.
- There are some key changes to student loan interest in particular that are still in the works. During the pandemic, the interest on student loans was waived until March of 2023. The government is now working on making this a permanent change. Should this new bill pass in the House of Commons, current and future borrowers won’t have to pay interest.
Who can take advantage RAP and these new terms?
Borrowers may qualify for repayment assistance if:
- They currently reside in Canada
- They are a reservist or the significant other of a reservist deployed abroad
- They are on an international internship for a year or less
To be eligible borrowers must also be:
- In the student loan repayment phase of the loan
- Up-to-date on their student loan repayments
This update applies to the following provinces:
- Newfoundland and Labrador
- New Brunswick
Some provinces do not participate in RAP. Instead, they receive payments to provide their own student financial assistance measures. These provinces include Quebec, Northwest Territories, and Nunavut.
Altogether, these updates to RAP will help approximately 180,000 students each year
What prompted these new student loan repayment terms?
The changes are part of Budget 2021’s historic investment. The investment of $5.7 billion will be spent over the next five years to help young Canadians pursue and complete their education, acquire new skills and have more work opportunities.
Following the implementation, the Government of Canada released a statement on their site. They emphasized the importance of Canada’s youth getting an education. It also placed significance on receiving the training needed to find good jobs. These terms are part of an investment to provide youth with the support they need to get those things. Now it will be easier to complete studies and transition into the workforce. From there, young Canadians can build the careers they want for themselves.
Here are some direct quotes from those involved:
“Starting today, more graduates can focus on building their careers, instead of worrying about student loans.” – Carla Qualtrough, Minister of Employment, Workforce Development and Disability Inclusion.
“The announced program changes will increase its usage and accessibility for borrowers in need.” – Mackenzy Metcalfe, Executive Director of the Canadian Alliance of Student Associations.
This update aligns with Canada’s 2030 Agenda for Sustainable Development Implementation, which supports Canada’s commitment to inclusive, equitable, and quality education. In other words, lifelong learning opportunities for all.
The United Nations, seeing how these efforts would build stronger and more inclusive communities, ended up adopting them as well.
Student loan repayment quick facts
Student debt is plaguing the lives of many Canadians, both young and old. For some more insight into the current state of student loans, here are some quick facts:
- Over 1.7 million Canadians live with a student loan.
- The average Canadian student loan debt is $28,000 for a bachelor’s degree and $15,300 for college grads.
- The total value of student loan debt in Canada is over $22 billion.
- The highest average debt loan in Canada is held by medical students at $84,172.
- The average student loan recipient is 24 years old and female.
- 74% of students who need to borrow money take out government-sponsored loans. Around 30%, including those with multiple sources of debt, go for private loans.
- The grant for full-time students has increased to $6,000 and $3,600 for part-time students.
- Two-thirds of students that graduated in 2015 have yet to repay their debt by 2018.
- Around 36% of all students in debt took out bank loans and credit lines to repay their debt in 2015.
- In the 2019-20 academic year, 608,000 students received government student loans.
As you can see, a significant number of Canadians are living with student debt. Worse still is how many people struggle to pay them back. Some even end up becoming insolvent. This update will ensure more Canadians have access to more affordable, accessible education. A necessity for building a strong, skilled workforce. This update will help support making that workforce a reality while also helping the overall economy.
The new updates to student loan repayments are sure to make many Canadians’ lives easier, especially those just entering the workforce. With these changes, borrowers can seek gainful employment before being faced with hefty financial obligations.
While the full effect is yet to be seen, the implementations are sure to help some that are struggling. If you’re already struggling with overwhelming debt Consolidated Credit can help by forming a plan to get your finances back on track. Contact us to find out more.