Student Line of Credit vs Student Loan Canada: Which Should You Use?

Students can borrow for school in two ways: a government student loan, assessed on financial need through your province’s student aid program, or a student line of credit from a bank or credit union, approved on credit. They differ most in interest while you study and in what happens if you can’t repay. This page compares the two; how government loans work in each province is on the student loans hub, and the other ways students pay for school are in the student money guide.

Side-by-side comparison

Government loans come with protections a line of credit lacks

A government loan is assessed together with grants, so applying through OSAP or your province’s program also checks whether you qualify for money you don’t repay (see provincial student grants). The federal portion charges no interest, and if your income is low after school the Repayment Assistance Plan can reduce payments to an amount based on family income, as low as zero. A bank line of credit has no grant component and no income-based relief.

Government loans are capped by assessed need, which is why some students, particularly in high-tuition professional programs, add a line of credit for the rest.

Student lines of credit for undergraduates

Banks offer undergraduate student lines of credit with limits that depend on the program and year of study. Common features:

• You draw only what you need, when you need it.
• Interest is charged on the balance from the day you draw, usually at the bank’s prime rate plus a margin. The chartered-bank prime rate is 4.45%.
• A co-signer, usually a parent, is often required when you have little credit history, and the co-signer is responsible for the debt if you don’t pay.
• Repayment terms after graduation vary by bank.

Rates, limits and co-signer rules change and differ between banks, so the figures to compare are the ones each bank quotes you.

Professional student lines of credit

For medicine, dentistry, law, pharmacy, optometry and similar programs, banks offer separate professional student lines of credit with much larger limits, rates closer to prime, and interest-only periods that can extend through residency or articling. Terms are set by each bank and are often negotiable, which is why students in these programs compare several offers.

Interest during school: an example

Paying the interest from income or savings while in school keeps the balance from compounding before graduation.

After graduation

Government loans: after the non-repayment period, payments begin over a standard term, and you can apply for the Repayment Assistance Plan if payments are unaffordable. Managing your federal loan online is covered in the NSLSC guide.

Bank line of credit: the interest-only period ends and the balance is usually converted to a loan with fixed payments, or principal payments begin. There is no income-based relief, though some banks extend interest-only periods for residents.

If you have both: the federal loan charges no interest, so any money for faster repayment goes further on the debts that do charge it: provincial loans that charge interest and the line of credit. Strategies for paying down student debt are on how to pay off student loans.

When each one fits

A line of credit can fit when:

• you’ve received all the government aid you’re assessed for and still have a gap;
• you’re in a professional program where the bank offers prime-based terms;
• you can pay the interest while you study.

It is a weaker fit when:

• you haven’t yet applied for government aid;
• your income after school is uncertain, since there is no income-based repayment help;
• you can’t pay interest during school, so the balance grows;
• the only offer available carries a high rate or needs a co-signer who would be exposed to the debt.

Related pages

• OSAP guide: how Ontario student aid works
• Student bank accounts
• What university costs in Canada
• Student budget by city