Student loan debt is a big deal for so many young adults living in Canada and the US, and I know it affects many of my readers. It’s not a topic I’m an expert in, though. And that’s why I haven’t talked about it much on the blog. I never took on student loans when I went to university (thanks Mom and Dad), so I don’t have personal experience with student loans. It’s also a crazy confusing topic when it comes to getting approved, different lenders, paying them back, etc.
I still think it’s a super important topic, though, and that’s why I’m handing over the reins today to my friend Nate from LendEDU. He is an expert in all things student loans and is here today to talk about some of the differences between Canada and the US when it comes to student loan debt.
Over to you Nate…
As neighbors, the U.S. and Canada have a lot in common, and both countries benefit from the goods, services, and culture that flow back and forth across the border. Unfortunately, they both also share what has come to be a major crisis among millions of citizens: student debt.
More than half of U.S. and Canadian graduates will take on student debt, and many are surprised at how similar that can be. In the U.S., borrowers typically carry an average of $28,565 in student debt. Canadian student borrowers typically have less debt, but with an average total of $28,000, it’s not by much. Unfortunately, that debt can make it harder for graduates to move forward, delaying everything from family plans to home purchases.
The cost of an education
One of the biggest factors in student loan debt tuition, which also happens to represent one of the biggest differences between Canadian and U.S. universities, at least as it relates to debt.
According to U.S. News, U.S. students who attend a private college or university during the 2019/2020 school year will pay, on average, $36,801 in tuition and fees. Those attending public schools will spend less but still pay about $10,116.
In Canada, tuition is significantly lower, as the average student will spend just $6,463 per year. However, it’s worth noting that there are far fewer private universities in Canada (<50) when compared to the U.S. (>1,600), which means lower collective costs.
Paying for an education
Students in both countries often rely on financial aid to cover the cost of school, and their options are quite similar: scholarships, bursaries, grants, private loans, and federal or government-based loans.
Scholarships, Bursaries, and Grants:
Ideally, students from both countries begin their search for aid with scholarships, bursaries, or grants, all of which provide “free money.” The availability of grants, scholarships, and bursaries varies drastically based on everything from the issuer (public, private, etc.) to eligibility requirements (merit, need, etc.). Both U.S. and Canadian students can search and apply for these financial aid options as they see fit. However, many will still need to cover their expenses through a loan.
Federal Student Aid
Canadian and U.S. students who are unable to pay out-of-pocket or who have exhausted any scholarship or grant options are encouraged to seek out federal aid before private loans. These loans offer competitive rates, though borrowers in Canada will not be able to take advantage of the fixed rates like their U.S. counterparts.
One of the leading reasons students consider federal loans first is the benefits offered through government-based lending, specifically income-driven repayment plans, though the names of those programs differ.
For instance, in the U.S., student federal borrowers can enroll in income-driven repayment plans like IBR and REPAYE. Under these plans, borrowers can reduce their monthly payments to 10% to 15% of their discretionary income. Once enrolled in these plans, borrowers who make regular payments for 20 – 25 years can take advantage of loan forgiveness.
Similarly, Canadian borrowers can take advantage of the Canada Repayment Assistance Plan (RAP). Under this plan, students can lower their monthly payments to 20% of their income. After 60 months (or ten years after a borrower completes their degree program), the government will start to cover the difference between their actual monthly payment, including interest, and their income-based payment plan.
Another difference worth noting is the role states or provinces play in student aid. In the U.S., many states offer grants or scholarship programs; however, unlike the federal government, states don’t offer public student aid. Instead, if states do have a student loan program, it’s typically through a private lender.
Conversely, students in Canada can turn to the provincial government to seek publicly funded financial aid. And, like federally funded Canadian student loans, province-funded student loans may also carry protections and in some cases, even forgiveness benefits. For instance, borrowers in British Columbia can qualify for the B.C. Loan Forgiveness Program if they agree to work in public health care facilities in underserved areas.
That’s not to suggest that U.S. states don’t offer any loan forgiveness or other repayment programs — several do, but only under certain circumstances. Kansas and Arkansas, for example, offer repayment assistance to qualified individuals in certain medical fields. However, students in the U.S. don’t’ benefit from the same access to state/province-based public aid as their northern neighbors.
Private Student Loans & Lines of Credit
For many students in the U.S. and Canada, private student loans and lines of credit are the last resort and only a consideration after they’ve exhausted scholarships, grants, and federal loans. Ultimately, these programs operate similarly regardless of which country you call home – borrowers can take out a sum of money to finance their loans, and repayment, which includes interest, takes place over 5 to 20 years. And though lenders exist in both Canada and the U.S., some lenders, like Sallie Mae, offer private loan services to both Canadian and U.S. students.
Student Debt and Bankruptcy
One of the final significant differences between U.S. and Canadian student debt is how it’s managed during bankruptcy. In the U.S., student borrowers who file for bankruptcy often find that their student debt is not eligible for discharge.
According to the Canadian Bankruptcy and Insolvency Act, Canadian student borrowers do maintain unique rights and can discharge student debt under certain circumstances. In this case, borrowers who meet specific requirements, namely claiming bankruptcy seven or more years after ending their part or full-time academic engagement.
When it comes to student debt, there are certainly differences between the U.S. and Canada; however, the two countries share many similar practices. But perhaps more importantly is the fact that student borrowers in both countries are often struggling to not only survive but move forward under student debt.
For both governments, student debt statistics should highlight the need for reform. Until then, borrowers on both sides of the border must fully analyze their academic choices, from the school they choose to the way they finance their degrees.
By Nate Matherson, Co-founder of LendEDU, a blog that helps consumers learn about personal finance. As of this writing, Nate has paid off more than ½ of his own student loan balance.
Me again! A big thank you to Nate for tackling this subject for us. There was a lot of info to tackle, and I know I learned a few things. Hopefully this helps you understand the differences between Canada and the US when it comes to how student loan debt is handled.
This post was proofread by Grammarly.