The Canada student loan interest rate went down on November 1, 2019.
This was announced as part of the 2019 budget (looking for details? Clickhere). The reduction affected both variable and fixed interest rates, with the amount depending on the type of rate you’re using.
For us, the change meant the interest rate on on our federal student loans would be reduced to prime.
So I was surprised when I logged in on November 1…and our interest rate was the same as it was October 31.
We gave it a bit of time, then we started making some phone calls. I wrote this post explaining the situation.
A couple months later, I wanted to give an update on what we learned.
It’s been…interesting, no pun intended.
Things we learned from calling Canada Student Loans
It took a couple phone calls to find out why our account didn’t change but we did get an answer.
We also learned something surprising about our progress so far.
First, we learned the interest rate on our statement is correct…ish
The reason we called was to find out why our interest rate still read 6.45 per cent instead of prime.
The answer: because our loan now has two different interest rates and the website only shows the highest one.
The two different rates did not come as a surprise to me. Some provinces don’t charge interest on provincial student loans but New Brunswick does. I was also aware New Brunswick would not be reducing the interest rate to match the federal rate.
What surprised me about this is how unclear this is when you look at your funding page.
When you look at your statement, there is no way to tell what interest rate is being charged to each portion of the loan. This, in my opinion, makes it more challenging to monitor your account for errors.
But that wasn’t the only surprising thing we learned from the call.
Second, we learned all our additional payments have only been applied to the federal portion of our loan
The most shocking part of the call was learning how disproportionately affected the two parts of our loan have been by our extra payments.
Every single cent outside the minimum payment has gone toward the federal portion of the student loan.
For those unfamiliar with how student loans work in Canada, in most cases, your loan includes a federal and a provincial portion. The split is not even — it’s typically something like 60/40.
Entering repayment, we owed $30,168.00 in federal loans and $18,128.00 in provincial loans.
One year later, the federal loan total is nearing $11,000…while the provincial total is still over $17,000.
Why does this matter? As explained above, these two loans now have different interest rates. Up to this point, all extra payments have been going to the loan that now has the lowest rate.
This is something I only learned when we called.
Student loans in New Brunswick are integrated. Payments for both parts are rolled into the minimum payment and it’s all handled through one agency. There are two parts to the loan, but you only make one payment.
Based on this, I was surprised to see our extra payments weren’t split between both parts.
What I am curious about is whether this will change now that one has a higher interest rate. It would make sense if that were the case, but I’m not sure. I anticipate there will be another phone call in the future.
How the lower Canada student loan interest rate will impact our debt-free journey
All that being said, if I’m honest, the lower Canada student loan interest rate won’t really change much for us in terms of our debt-free journey.
The goal is still to pay off the loan as quickly as we can. Our 2020 goal is to shave at least $10K off the principal, something that should be doable based on past experience. Lowering the Canada student loan interest rate means more of our payments will go toward that goal, which is a good thing.
The only thing we may want to investigate is how our extra payments are divided now that we’re dealing with two different interest rates. It is a bit frustrating to know that the biggest part of our loan is now the one with the highest interest rate.
That said, the lower the balance goes, the less interest we’re paying, which is a good thing.
Final Thoughts
It took a few calls, but I am glad we got the information we needed to understand what’s happening with our student loan.
I do strongly feel the information on the website should be more transparent — the fact that information about the amount owing on each portion isn’t easily accessible is strange to me.
All that said, it feels good to see more of our payments going to the principal these days. I consider that a win.
Do you have a Canada Student Loan? What impact did the change to the interest rate have on your journey?
