Student Line of Credit vs Government Student Loan in Canada

For most students, government student aid is cheaper than a bank student line of credit, so apply for it first and use a line of credit only to cover what aid does not. Since 1 April 2023, Canada Student Loans have accumulated no interest, and they come with a six-month non-repayment period after you finish school and access to the Repayment Assistance Plan. Some provincial portions still charge interest; the Ontario portion, for example, floats at prime plus 1%. A student line of credit charges interest on whatever you draw from the day you draw it, and you must pay at least that interest while you study. Its advantages are flexibility and, for some programs, a higher limit. Read the terms, including whether you need a co-signer.

How each one works

The provincial portion matters

Most full-time student aid combines a federal loan with a provincial one, and the provincial rules differ. The National Student Loans Service Centre lists the Ontario portion at a floating rate of prime plus 1% and notes a fixed rate is not available for it; it lists the Saskatchewan portion at floating prime. Portions in British Columbia, Newfoundland and Labrador, Manitoba and New Brunswick carry no interest, while Alberta loans use the CIBC prime rate. Students in provinces with interest-free portions get an especially good deal compared with a line of credit.

How student lines of credit work

The Financial Consumer Agency of Canada (FCAC) explains that a line of credit lets you borrow repeatedly up to a preset limit, and you pay interest only on what you use: with a $10,000 limit and $3,000 drawn, you pay interest on $3,000. You must pay at least the interest while studying. After graduation, most lenders allow interest-only payments for a grace period, usually 6 to 12 months, and then you repay principal and interest. You can apply at any time and must prove full-time or part-time enrolment at a recognized Canadian school. The limit can depend on your program, your school, your living costs, your credit history and your ability to repay, and you may need a parent or other co-signer, who becomes responsible for the debt if you cannot pay.

Terms differ by bank. TD's Student Line of Credit page, for example, says no co-signer is needed to apply, with co-signer requirements assessed case by case based on credit history, and that no principal payments are due until 24 months after you leave school, with interest-only payments while you study. TD also advertises a cash offer of $300, $550 or $1,000, depending on program, if you are approved by 31 October 2026, with conditions. A cash offer should not be the reason to borrow; compare the rate and terms first.

Insurance and your rights

Lenders may offer optional credit insurance on a student line of credit, which can cover payments in cases such as serious illness or job loss. FCAC says you do not have to buy it to be approved, and federally regulated lenders such as banks cannot add it without your express consent. You also have the right to a disclosure statement showing the interest rate and costs before you sign.

When a line of credit makes sense

• You applied for government aid and the assessed amount does not cover your costs.
• You do not qualify for government aid, for example because of family income, and have no other source.
• You are in a high-cost professional program where banks offer larger limits.
• You need a short bridge, such as covering a term before aid arrives, and can repay soon.
• You can pay at least the interest every month while studying.

Example with made-up inputs

These numbers are an example with made-up inputs. Jordan, in Ontario, needs $10,000 over four years. Suppose half comes as a federal loan and half as an Ontario loan, and that interest on the Ontario half averages a made-up 6% from the start of repayment. With a 10-year repayment, the federal $5,000 costs no interest, and the Ontario $5,000 costs about $1,660 in interest, for total interest of about $1,660. If instead Jordan draws $10,000 on a line of credit at a made-up 7%, $2,500 a year, paying interest only while in school and for one year after, interest during those five years is about $2,450. Repaying $10,000 over the next 10 years at 7% adds about $3,930. Total interest is about $6,380.

The example ignores interest that may accrue on a provincial portion during the non-repayment period and assumes rates stay constant; real rates float with prime. It still shows why government aid usually costs less.

Steps

1. Apply for government student aid every year, even if you think you will not qualify.
2. Add up grants, loans, savings, RESP withdrawals and work income.
3. Borrow only the gap on a line of credit, and draw it as needed rather than all at once.
4. Compare rates, co-signer rules and grace periods at two or three lenders.
5. Pay at least the interest monthly while studying, and more if you can.
6. After graduation, repay the line of credit first if its rate is higher than your provincial loan.

Common mistakes

• Using a line of credit instead of applying for interest-free aid.
• Drawing the full limit at the start of the year.
• Forgetting that interest starts on the day you draw.
• Buying optional insurance without reading what it covers.
• Missing interest payments while in school, which can hurt your credit.

Related: student loan repayment and RAP and co-signing a student loan.