A university or college degree is a great advantage in your job search. But, it’s a costly advantage. Student loan debt contributed to 1 in 6 insolvencies in Ontario.
And, the average Canadian university graduate has $20,000 in student loan debt upon undergraduate graduation. And, graduates of health-related programs have an average of $26,000 in debt.
Student loan repayment doesn’t typically happen quickly. We know that from the two-thirds (64%) of 2015 Canadian graduates who still haven’t paid back their debts by 2018. Moreover, loan repayment was even slower for the following groups:
- people with children
- residents of Quebec or the Maritimes
- older graduates
- graduates with disabilities.
Slow repayment means more interest payments and fees. That’s even true for government-sponsored student loans, which begin accruing interest after graduation.
Life is expensive enough, especially when you have student loans to pay off. And, things really add up around tax season, when it’s time to pay income tax.
Luckily, there are many deductions you can make at tax time to owe less money. For example, you might be wondering, “can I deduct my student loan interest?” Let’s take a look…
Is there any tax-saving benefit for interest on student loan debt?
YES! Making all of those monthly payments after graduating get you some tax saving.
You can claim interest paid on your student loans for 2020 or the previous 5 years. Only you can claim this interest if the loan is in your name, even if a family member paid for it.
However, not every loan is eligible. The Canada Revenue Agency (CRA) allows you to deduct interest paid on student loans if you received them under the:
- Canada Student Loans Act
- Canada Student Financial Assistance Act
- Apprentice Loans Act,
- or through any similar provincial or territorial government laws
You cannot claim the interest paid on any of the following loans, even if you used it to pay for your schooling:
- a line of credit
- business loan
- any loan from a financial institution or private lender
This is also true for student loans combined with other loans or loan consolidation agreements.
So, if you’re wondering if there’s any tax benefit for private student loan interest – the answer is no.
Interest Paid on Your Student Loans – Line 31900
You can claim the interest you paid on your student loan via Line 31900 of your tax return. On that line, you can input the amount of interest paid.
You might be eligible for a student loan interest tax credit if your income tax was higher than the credit amount. If the credit amount was higher than your income tax, you could carry forward the interest credit in any of the following five years.
You can also claim any provincial or territorial non-refundable tax credits you’re eligible for on line 58520 of Form 428.
What Are Other Types of Tax Credits and Deductions for Students?
The CRA offers a few tax credits and deductions for students.
If you moved at least 40 kilometres closer to a school for post-secondary education, you could claim your moving expenses on line 21900 of your return.
Child Care Expenses
If you have or take care of children while you’re studying, you can claim child care expenses on Line 21400 of your return.
Canada Employment Amount
The Canada Employment Amount is a non-refundable tax credit that mediates the cost of home computers, uniforms, and supplies for employed individuals. Students can claim this amount on line 31260 of their return if they reported income in the last tax year.
Tuition, education, and textbook amounts
One line 32300, students can claim the cost of tuition, fees, and textbooks. To claim these amounts, your university or college must provide you with one of the following forms:
- T2202 – Tuition and Enrolment Certificate – Form T2202
- TL11A – Tuition and Enrolment Certificate – University Outside Canada –
- TL11C – Tuition and Enrolment Certificate – Commuter to the United States
- TL11D – Tuition Fees Certificate – Educational Institutions Outside Canada for a Deemed Resident of Canada
Canada Training Credit
Students can claim up to $250 per year or a lifetime maximum of $5,000 through the refundable Canada Training Credit.
Child and Family Benefits
Students with or without children can claim these benefits. Specifically, single or coupled students with children can claim the Canada Child Benefit.
Invest or Pay Student Debt?
There are many benefits to paying off debt, including savings on interest, emotional relief, and less stress. However, the COVID-19 pandemic has shown us that new circumstances might call for new ways of thinking.
The Canadian government froze interest rates on the federal portion of student loans at 0 percent until 2023. And, provinces lowered provincial interest rates to 3.5 percent. With little to no money owed in interest, students have an opportunity to invest in their futures through tax-free savings accounts and other investments. Low interest rates also offer students the opportunity to pay off debts with higher interest, such as credit card debt.
After graduation, students must begin paying off debt if they earn more than $25,000 per year. However, a new proposal in the 2021 federal budget might change that threshold to $40,000. This is yet another opportunity for students to invest, save, or pay off high-interest debts.
Low interest and tax deductibility attract students to invest instead of focusing on paying off student debt in its entirety.
Student debt is stressful for many Canadians, especially when interest adds up over the years. Make sure you claim any eligible amounts on your tax return so that you can minimize your financial burden. If you’re having trouble paying off your student debt and are considering debt consolidation, speak to one of our credit counsellors today at (844)-402-3073.