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Not Self-Interest Free.

Why the Canadian government's move to eliminate interest on all student loans is political and not an effective way to help students.

Written by Owen Angus-Yamada

The Liberal government has been on a roll. Only a few weeks removed from the announcement of limiting the 20-hour work limit for international postsecondary students, the federal government recently announced that all federal student and apprenticeship loans will be interest free. While some groups have praised these rapid-fire policies, I do not nor would advise further encouragement. Instead of enhancing postsecondary students’ wellbeing, the federal government seems to be trading Canada’s long-term future for short term economic boosts and political “wins.”

While I recently wrote about how lifting the 20-hour limit can undermine Canada’s postsecondary institutions and de-value longer term economic development, I have to say that eliminating interest is a far-more egregious example of a poorly thought-out policy.

For starters, the elimination of interest student loans does nothing to help current students right now. During a time of record high inflation where students are struggling financially to pay for the necessities, the government decided that students don’t need more money in their pockets right now.

Now, some might say that this move is even better than just helping current students because it will help past, present, and future[1] student loan borrowers. But who are these borrowers really? Because Canada already offers a Repayment Assistance Program (RAP) for loan-borrowers earning at or below $40,000/year. In addition, in 2021, Liberals promised to raise the RAP threshold to $50,000, meaning the loan-borrowers who will be saving money are ones earning at or above the median Canadian income. The government says that the move is expected to save the average student loan borrower $410 a year, but clearly those savings are being enjoyed by more financially stable and well-off loan-borrowers[2].

I don’t want you to think that I am against saving people money because I’m not, I’m frugal and I like to save money. But being as frugal as I am, I can’t help but think about how much money eliminating interest on loans is going to cost and how it could have been put to better use. This program is not cheap, costing an estimated $2.7 billion dollars in revenues. With the federal government already running at a significant deficit, that $2.7 billion dollars is going to come back and maybe even hurt the very people it is meant to help through a higher national debt and/or less funding for other programs. Even if the government was gung-ho to spend a couple billion dollars to support students, then there was a myriad of other ways they could have supported students which would have been more efficient.

So why make this move at all? Well, like most government actions, I suspect it is to appease their voter base. The Liberal government has been losing support amongst younger voters, a crucial base for their initial 2015 victory.

As a recent graduate who just paid off his student loans, I appreciate the fact that they are making moves, but I wished they were in the right direction. To me, it seems like the roll they are on is downhill.

[1] I’m not even going to acknowledge those who claim a victory “future students” because I have never heard of someone making a decision to attend college or university based on the level of interest on their student loans upon graduation.

[2] I am sure there are some students who accumulated a lot of debt and earn just above the RAP threshold whom the announcement benefits, but it would have been more effective just to target those borrowers by simply raising the RAP threshold.


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