Eliminating Interest on Federal Student Loans Could Cost More Than Initial $2.7 Billion Price Tag: Report

Students walk on campus at the University of Alberta in Edmonton, in a file photo. Omid Ghoreishi/The Epoch Times

A recent measure eliminating the interest on federal student and apprentice loans could cost more than the $2.7 billion price tag over the next five years that the Employment Department initially gave to a parliamentary committee, new figures show.

The department wrote in an Inquiry of Ministry recently tabled in the House of Commons that the government charged nearly $750 million in total federal student loan interest in 2019—the year before the pandemic hit—and collected about $415 million, according to Blacklock’s Reporter.

The government suspended interest charges and collection in early 2020 for two years, expiring March 31, 2023, as a COVID-19 pandemic-relief measure.

In Bill C-32, An Act to Implement Certain Provisions of the Fall Economic Statement, which passed into law on Dec. 15, the government dropped future interest charges on the federal portion of all loans under the Canada Student Loan and Canada Apprentice Loan programs.

The measure will take effect in April 2023.

The Senate national finance committee heard from the Employment and Social Development Canada (ESDC) in November that the government estimates the cost of dropping the interest on student loans over the next five years will reach about $2.7 billion.

“Right now the investment is $2.7 billion over five years, but then there is an ongoing cost as well of $556.3 million per year,” said Erin Hetherington, a director with the ESDC’s Canada Student Financial Assistance Program, while testifying before the committee on Nov. 22.

Hetherington said the estimated price tag of $2.7 billion over five years was calculated using past loan interest collection revenue figures, but did not mention that total federal student loan interest charges in 2019 alone amounted to nearly $750 million.

“It is a reflection of the cost that the federal government will not be receiving from permanently waiving interest,” Hetherington told the committee.

Student Loans

The Liberal government’s move to abolish the interest on student loans follows the party’s 2021 election promise to increase the repayment assistance threshold to $50,000 for borrowers who are single—meaning that new graduates making below that amount annually would not be required to repay their loans until their income reaches that threshold.

In early November, Employment Minister Carla Qualtrough announced a similar measure but with a lower repayment threshold of $40,000.

“This will support an estimated 180,000 borrowers each year,” she said.

The average Canadian student exits his or her post-secondary studies with about $14,000 of debt just from the federal portion of their loans.

“But then in addition, they also have provincial student loans,” said ESDC assistant deputy minister Atiq Rahman while testifying before the House of Commons finance committee on Nov. 21.

Conservatives have criticized the government’s dropping of student loan interest, saying the cost of doing so will inevitably fall on Canadians.

“Who is paying the interest on those loans? It is going to be Canadians,” said Conservative MP Kevin Waugh in the House on Dec. 6.

“It was a good gesture,” he added. “I do not know how long we can go on with it because of the Liberals’ spending. We are seeing interest rates rise almost every two or three weeks in this country because of the money they are spending.”