Before you borrow: Navigating back-to-school financial aid in Canada
Each year, more than half a million Canadians take out student loans to cover tuition, books, and living costs. But according to some recent research, including a study from Royal Bank of Canada (RBC), many students are unprepared for how these loans work and how to manage repayment.
Understanding your options now can help you graduate with a much stronger financial foundation.
Student loans in Canada
In Canada, you generally have two paths for borrowing: government programs or private financial institutions. According to RBC’s survey, 62% of students say they rely on two or more sources to pay for school—including government loans, scholarships, family support, credit cards and student lines of credit. But only 30% say they understand the differences between the options.
The government route: Canada Student Financial Assistance Program
With the Canada Student Financial Assistance Program, the federal government partners with provinces and territories to provide two types of aid:
- Loans: Borrowed money that you must repay starting six months after you finish your studies
- Grants: “Free” money based on financial need and no repayment requirement
There is zero interest on the federal portion of Canada Student Loans; however, interest may apply to provincial or territorial portions. Some regions even offer loan forgiveness programs for eligible students.
Eligibility for these programs vary by province or territory of residence. Always check with your school’s financial aid office first.
The private route: banks and financial institutions
If you reach the limit or don’t qualify for government funding, you may need to look to a bank. Interest rates on bank loans are typically higher than government loans.
Unlike the government options, private loans often require repayment almost immediately (usually on a 30-day cycle). Unfortunately, private loans generally do not offer interest-free periods or loan forgiveness.
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Other ways to fund your studies
Loans aren’t your only option. With non-repayable funds, you don’t have to repay money you receive. They include:
- Bursaries, which are awarded based on demonstrated financial need. Ask your school’s financial aid office for a list.
- Grants, which are often based on need, but other considerations like academic merit might come into play. They can also be tied to specific demographics (e.g., mature students, students with disabilities, or those studying in specific sectors).
- Scholarships, which are awarded to students based on academic merit such as having a certain grade point average (GPA). Sometimes they’re reserved for specific groups such as women students in STEM or students from a certain area of the country.
- Registered education savings plans (RESPS), which require advance planning but can help ensure you have money for post-secondary school while also offering tax benefits. Any adult can open an RESP to save money for a child’s post-secondary education, and in some cases, get additional government funds through the Canada Learning Bond (CLB) and the Canada Education Savings Grant (CESG).
If you receive repayable funds, you’ll need to repay the money with interest. These options include:
- Student lines of credit, which allow you to borrow what you need (up to a limit) and pay interest only on the amount you actually use. A line of credit can come in handy as a back-up if you have access to other funds, such as from a job.
- Credit cards, which are convenient and widely accepted, but due to their extremely high interest rates should be used only as a last resort.
Between tuition and books, housing, and living expenses, costs add up fast. Luckily, there are numerous options available to Canadian students—and some are even free. A little forethought can go a long way, so consider this your first homework assignment.
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