Canada Student Loan Interest Rates 2025: What You Must Know
Paying for higher education in Canada often means relying on student loans. But one of the most important—and sometimes confusing—parts of borrowing is understanding Canada Student Loan Interest Rates.
Whether you’re a recent graduate, a current student, or planning to study in Canada, knowing how student loan interest works can save you thousands of dollars in the long run. This guide will break down Canada student loan interest rates in 2025, repayment options, and smart strategies to manage your debt effectively.
Do Canada Student Loans Still Charge Interest?
Here’s the good news: since April 2023, the Government of Canada permanently eliminated interest on federal student loans. This means if you borrowed through the Canada Student Financial Assistance Program, your loan balance will no longer grow with interest.
However, you still need to check whether you also have a provincial or territorial student loan. Some provinces have also removed interest, while others continue to charge it.
Why Did Canada Remove Federal Student Loan Interest?
The government scrapped interest on federal student loans to ease the financial burden on graduates, especially in today’s high-cost living environment. By removing interest, every payment you make now goes directly toward reducing the principal balance, not servicing interest.
For many Canadians, this move translates into saving hundreds to thousands of dollars over the life of their loan.
How Federal Student Loan Repayment Works Without Interest
If you borrowed a federal Canada Student Loan, here’s what repayment looks like in 2025:
- Grace Period: Repayment begins six months after graduation. No payments are required during this time. Interest is also not charged.
- Repayment Term: Standard repayment is spread over 9.5 years.
- Flexibility: You can choose to pay more than the minimum, make lump-sum payments, or pay off the loan early with no penalties.
All repayments are handled through the National Student Loans Service Centre (NSLSC). You can log in to your NSLSC account to manage payments, check your balance, and apply for assistance if needed.
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What About Provincial Student Loan Interest?
While federal loans are interest-free, provincial and territorial loans are a mixed picture.
- Interest-Free Provinces: Ontario, British Columbia, Newfoundland & Labrador, and New Brunswick have eliminated provincial student loan interest.
- Interest-Charging Provinces: Alberta, Saskatchewan, and Manitoba still apply interest on provincial loans, typically tied to the prime rate.
For students in these provinces, it’s important to pay attention to how much interest adds up. Even a small percentage can add thousands of dollars over a decade.
How Interest Rates Are Calculated on Provincial Loans
For provinces that still charge interest, there are generally two types of rates:
- Fixed Rate – A set percentage above the prime lending rate (e.g., prime + 2%). Payments remain predictable.
- Variable Rate – Interest fluctuates with the prime rate, which is adjusted by the Bank of Canada.
As of 2025, the Bank of Canada’s prime rate remains relatively high due to inflation concerns. This means borrowers in provinces with variable-rate loans may be paying significantly more than in previous years.
To compare current provincial rates, check your province’s student aid website.
How Much Can Interest Cost You?
Let’s break it down with an example.
Imagine you borrowed $20,000 in provincial student loans at a variable rate of prime + 2%. If the prime rate is 6.95%, your effective interest rate is 8.95%.
Over a 10-year repayment term, you could pay more than $10,000 in interest alone—essentially repaying 1.5 times the original loan.
This is why understanding your interest rates and repayment options is so critical.
Strategies to Minimize Student Loan Interest
Even if you’re stuck with provincial loan interest, there are smart ways to reduce what you pay:
1. Make Early Payments
Interest is calculated daily. Paying a little extra—especially in the early years—reduces your principal faster and lowers total interest.
2. Choose Variable or Fixed Based on Rates
If prime rates are high, locking into a fixed rate might give you stability. If rates are falling, a variable option could save money.
3. Apply for Repayment Assistance Programs
If you’re struggling, the Repayment Assistance Plan (RAP) ensures your payments are tied to income. While RAP doesn’t cancel interest for provincial loans, it keeps payments affordable. Learn more here: Government of Canada – Repayment Assistance Plan.
4. Refinance With a Private Lender
In some cases, refinancing provincial student loans with a bank or credit union may reduce your interest rate. However, be cautious—refinancing can mean losing access to federal repayment protections.
5. Direct Windfalls Toward Debt
Tax refunds, work bonuses, or side hustle earnings can be applied as lump-sum payments, cutting years off your repayment schedule.
Impact of Zero Interest on Federal Loans
The elimination of interest has major implications for Canadian graduates:
- Faster Debt Reduction: Payments go directly to the principal, helping graduates get debt-free sooner.
- Lower Lifetime Costs: Graduates save thousands over time.
- Financial Stability: With less debt pressure, more young Canadians can afford to save, invest, or buy homes earlier.
This makes Canada one of the most borrower-friendly countries for federal student loans compared to places like the United States, where interest remains a major challenge for graduates.
FAQs on Canada Student Loan Interest Rates
1. Are all student loans in Canada interest-free?
No. Federal student loans are interest-free, but some provincial loans still charge interest.
2. Which provinces still charge student loan interest?
As of 2025, Alberta, Saskatchewan, and Manitoba apply interest on provincial loans.
3. What is the difference between fixed and variable rates?
A fixed rate stays the same throughout repayment, while a variable rate changes with the Bank of Canada’s prime rate.
4. Can I refinance my student loans to lower interest?
Yes, but refinancing through a private lender may mean losing access to government programs like repayment assistance.
5. How can I check my current student loan interest rate?
Log in to your NSLSC account for federal loans, and check your provincial student aid website for provincial loan rates.
6. How much money will I save with zero-interest federal loans?
Savings vary by loan size, but most graduates save hundreds to thousands of dollars over their repayment period.
Final Thoughts
Student loans are one of the biggest financial commitments many Canadians face, and interest rates play a huge role in how quickly you can pay them off. The federal government’s move to permanently eliminate interest is a game-changer, but provincial borrowers still need to watch their rates carefully.
By understanding how student loan interest works, comparing provincial policies, and applying smart repayment strategies, you can save thousands and gain financial freedom faster.
If you’re currently repaying or about to graduate, start by reviewing your loan details through the National Student Loans Service Centre and your provincial aid office. Knowledge is power—and in this case, it can save you money too.
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