Everything You Need to Know About Student Loans in Canada

Introduction: Why Making the Correct Financing Choice Matters

Post-secondary education can be one of the most meaningful investments you’ll ever make. A university or college credential could open opens doors to more career opportunities, equipping you with marketable skills for the future. However, when you think about tuition, textbooks, and living expenses, it can feel really intimidating.

According to Statistics Canada, in 2024, the average annual tuition for undergraduate domestic students in Canada was $7,360 per year. The yearly costs could rise significantly considering living expenses, books, etc. Fortunately, there are multiple ways to pay for your education, whether through savings, family financial support, government loans, grants, or a student line of credit at a financial institution.

This guide breaks down the key basics about borrowing for post-secondary studies, the differences between various loan types, and how to manage your expenses effectively. If you’ve ever asked how student loans work or whether loan forgiveness exists, below is some valuable information.

Who Typically Needs a Loan?

A common misconception is that only a small percentage of students rely on loans. According to Statistics Canada, nearly half of Canada’s post-secondary students take out a loan. Rising educational expenses and living costs, mean many students look for practical financing options to bridge the gap and reduce possible financial stress.

Understanding the Basics: How Do Student Loans Work in Canada?

In Canada, student loans generally come from three primary alternatives:

• Government student loans

• Student loans (provided by a financial institution)

• Student lines of credit (provided by a financial institution)

These options could help you cover living expenses, tuition, textbooks, equipment, and other school-related costs by allowing you to borrow a specific amount of money and repay it—plus interest—over time. Exactly how much you pay back each month and when you must start repayment often depend on the type of loan you choose and its terms.

Government Student Loans: Key Features

The federal government, together with provincial and territorial governments, offer student loans to reduce financial barriers to education. These loans help post-secondary education more accessible-particularly for students from lower income families, students with children and those with disabilities-so that cost doesn’t stand in the way of pursuing a degree.

Government Student Loans have detailed eligibility criteria, where Government agencies assess your financial situation, including household income and the number of dependents in your family. They also could consider your enrollment status, as you typically need to be enrolled in a designated program and maintain a particular course load (often 60% of a full course load) to remain eligible.

Understanding how Government Student Loans work is highly recommended, particularly as they could offer interest-free financing during your studies. Furthermore, they provide flexible repayment grace periods, loan forgiveness programs and repayment assistance. You can find more information about Student Government Loans’ detailed eligibility rules by visiting the National Student Loans Service Centre (NSLSC) website.

Grants and Scholarships:

Unlike loans, grants and scholarships don’t typically need to be repaid. They’re often awarded based on financial need, academic merit, or both. The Government of Canada offers grants of up to $4,200 per year for eligible students, and universities also maintain their lists of grants and scholarships.

Accessing grants and scholarships could prove challenging. Here are some tips to consider:

• Start early: Application deadlines could be as early as six to eight months before the school year starts.

• Search extensively: Look into your school’s financial aid office, community organizations, and private foundations.

• Apply for multiple opportunities: Don’t limit yourself to just one or two grants or scholarships.

Student Line of Credit vs. Personal Loan

If you need extra help paying for your studies, there are two financial products that might be what you’re looking for:

Student Line of Credit

A student line of credit is a flexible loan for university and college students that lets you borrow money when you need it for things like tuition or living expenses. You don’t need to use it all at once. You borrow as much or as little as you need, up to your approved limit, and you only pay the applicable interest on what you borrow.  Minimum payments can be as low as interest only. You can pay off your entire balance or make extra payments any time without penalty.

Once you graduate, you typically have an interest only payment grace period of up to twenty-four months before you are required to start repaying the principal. Remember that it is always a good idea to always make additional payments if you can afford to do so to help you reduce interest costs.

Personal Loan

Personal loans allow you to borrow a one-time lump sum from a financial institution, which you repay in fixed installments which includes both principal and interest over a set period. This predictable repayment schedule could make your budgeting easier.  On the other hand, because a personal loan has a set amortization, you could have higher monthly payments as you repay both the principal and the interest at the same time. It’s also important to note that with a Personal Loan you pay interest on the total amount borrowed, regardless of whether you have spent the funds or not.

Students often need the help of a co-signor when applying for a Personal Loan or for a Student Line of Credit. It’s always a good idea to speak with a Financial Advisor to understand all the requirements before applying.

How much is your schooling going to cost: Building a Realistic Budget

Before deciding how much to borrow, it’s important to map out your expected expenses: Tuition and fees, books and supplies, living expenses, transportation, lifestyle and other personal costs.

An easy way to organize these categories is to use RBC’s Student Budget Calculator, which can help you figure out how much money you’ll need to get through the school year and customize details for your specific situation.

Strategies to Manage Your Debt Responsibly

No matter which financing option you choose—government loans, a student line of credit, or a personal loan—it’s essential to borrow wisely.

1. Borrow Only What You Need

It may be tempting to borrow more than necessary to cover extras but remember that every dollar you borrow accrues interest and it will need to be paid back.

2. Start Making Small Payments Early

Even if you don’t need to start repaying the principal right away, consider making small payment while you’re still in school (if you can). This approach can lower your overall balance and reduce the interest costs.

3. Live Within Your Means

Keep track of non-essential spending. Cooking at home, choosing cost-effective housing, and by using student discounts on transit, you can stretch your budget further.

4. Seek Out Financial Advice

Consulting a financial advisor can help you choose the best financial product for your particular needs. They can explain the pros and cons of each option and guide you toward a decision that is right for you.

To learn more about how RBC can support you, book an appointment or visit a local RBC branch. A knowledgeable advisor can help you understand all the available financing options so you can make an informed decision.

Conclusion: Invest in Your Future with Confidence

Higher education is a big commitment, but understanding your financing options can help you confidently move forward. Whether you opt for government loans, a student line of credit, or a combination of both, the key is to stay informed, plan your budget, and borrow responsibly. With the right financial tools and a clear strategy, you can focus on your studies and future success.

GLOSSARY OF TERMS

Amortization: The process of gradually paying off a loan over time through regular installments.

Co-signer: A person who agrees to be responsible for repaying a loan if the borrower defaults.

Grace Period: A period after graduation or leaving school before you’re required to start repaying the principal your loan.

Grant: Financial aid that doesn’t need to be repaid, often based on financial need or academic merit.

Interest: The cost of borrowing money, usually expressed as a percentage of the loan amount.

Loan Forgiveness: The cancellation of all or a portion of a loan under certain conditions, such as working in public service or teaching.

Principal: The original amount of money borrowed, excluding interest.

Scholarship: Financial aid awarded based on academic achievement, talent, or other criteria.

Student Line of Credit: A revolving line of credit specifically for students, allowing them to borrow and repay funds as needed.

Sources Cited

• Statistics Canada: Student Loan Statistics (www.statcan.gc.ca)

• National Student Loans Service Centre (www.csnpe-nslsc.canada.ca)

• Government of Canada, Canada Student Grants Program (www.canada.ca)

• RBC Student Budget Calculator (www.rbcroyalbank.com/student/budget-calculator/)