05 Mar Canada student loans interest – Information that you need to know
Canada student loans interest – Information that you need to know
Knowing that many students do not have enough money to go to college, Canada Student Loans and Canada Apprentice Loans have supported nearly interest-free loans. Furthermore, before graduate and during the six months non-repayment period, the student does not need to pay for the interest fee. Anyway, after six months, you need to pay interest to what you owe. However, there are many tips to maximize your student loan interest deduction.
Canada student loan interest rates 2019
2019 is a year of many changes in student loan policy and interest. CRA recognized that some students have a hard time paying interest payments to the government. Beginning in November 2019, the interest rate for Canada Student Loans and Canada Apprentice Loans have been reduced. This is a good time for anyone thinking about applying for student aid. For more specific, the interest rate respectively decreased to:
Two interest rates:
- floating interest rate: 3.95% (prime rate)
- fixed interest rate: 5.95% (prime rate + 2%)
Thus, from 2018 and further, the interest rate was 6.45% (prime plus 2.5%) for floating interest rate and 8.95% (prime plus 5%) for the fixed interest rate. Fixed-rate is cheaper but not security and unpredictable because Canada’s prime rate is changing every month. However, if you are confident and feel lucky, sign up for the fixed interest rate. To optimize and ensure the interest you pay is lowest, CRA allows you to change from floating interest rate to fixed interest rate anytime. When you see the prime rate increase, this is the time to switch. But consider before moving because once you have moved to the fixed interest rate, you cannot turn back to the floating interest rate.
Furthermore, Canada Student Loans and on Canada Apprentice Loans give students 6 months of non-repayment when students graduate, stop the study, or change from full time to part-time study. That means before graduate, and during the six-month non-repayment period, the student does not need to pay for the interest fee.
Support for Students with Permanent Disabilities in Canada
Not only significantly reduced interest rates. Start from August 1, 2019, to July 31, 2020, the maximum amount you could receive from the Canada Student Grant for Services and Equipment for Students with Permanent Disabilities (CSG-PDSE) will increase to $20,000 per year. Also, at this time, the definition of severe permanent disability has some change. Permanent disability was expanding eligibility to those who able to work, but their jobs will never be substantially gainful and those who may still be able to study post-secondary education. On August 1, 2020, restrictions for recipients of the Repayment Assistance Plan for Borrowers with a Permanent Disability will be removed. Recipients can access further federal student aid without having repaid their loans in full. But however, that is the unfolding story. You can read this article to understand and get more information about the Permanent Disability deduction.
How can I reclaim my student loan interest?
To be eligible to claim student loan interest, you must apply for student aid and receive it under these organization:
- The Canada Student Loans Act
- The Canada Student Financial Assistance Act
- The Apprentice Loans Act
- Any provincial laws like the acts above
After being able to claim the interest, you can go to line 319 of your Schedule 1, Federal Tax and edge 5852 of your provincial or territorial Form 428. The detail of how to fill those 2 forms are in this article: Canada student loans interest. How to deduct?
How to calculate student loan interest deduction?
Not difficult to find a repayment calculator on Google, but most of them are not correct because they just use the general formula, which it can not apply to everyone. This article will give you the necessary information, and now you can know precisely how student loan interest works.
Before calculating Student Loan interest, you need to show what interest rate options you had chosen.
- floating interest rate: 3.95%
- fixed interest rate: 5.95%
To reclaim the interest from 2018 and further, it will be prime plus 2.5% for floating interest rate and prime plus 5% for the fixed interest rate (Prime rate could be changed anytime). But first, you need to calculate your Student Loan monthly repayment with:
- Amount of your total loan debt
- Amount of interest rate
- How long do you want to take to repay?
Now, open your MS Excel, fill the table Excel like the photo below.
To calculate a loan payment amount, you can select the PMT function. In the example shown, the formula in C10 is =PMT(C6/12, C7,-C5).
After that, using this formula:
For this example, I will have
The last step to calculate the tax credit is multiplying the amount of the loan interest by the lowest provincial or territorial tax rate. Exception in Quebec, where the rate is 20%.
- Amount of loan interest is $593.2
- Your tax rate is 20%
If you need any help, connect to Tax-Reclaim to solve all of your problems right away. However, now you have all the information for calculating student loan interest, you can totally do it all by yourself.