Changes assist nearly one in three students who take advantage of student loans to finance their education.
Maroney on Money for August 23, 1998
In my last article I provided an overview of the Canadian Opportunities Strategy (COS) that the government introduced in the federal budget last February. Recall that the COS is a federal government initiative designed to help Canadians get an education, thereby increasing their chance of landing a decent job so that they can earn more money. In this week’s article, I’ll review three components of the COS: the Canadian Mellenium Scholarships, Canada Study Grants and changes to the Canada Student Loans Program.
Canada Millennium Scholarships are the centrepiece of the COS. According to the government’s own literature, these scholarships represent “the single largest investment ever made by a federal government to support access to post-secondary education for all Canadians”. Yes, the investment is said to be even bigger than the MP pension plan – now that’s big!
These scholarships are designed to increase access to post-secondary education for more low-and middle-income Canadians. The idea is to establish a $2.5 billion initial endowment to provide scholarships to 100,000 full- and part-time students each year during a 10 year period commencing in the year 2000 (when else).
For full-time students, scholarships will average $3,000 per year. A student can receive a maximum of $15,000 over four year academic years of study toward an undergraduate, diploma or certificate.
Canada Study Grants, a close cousin of the Millennium Scholarships, are targeted at students in financial need who have children or other dependants. Qualifying full-or part-time students can receive grants of up to $3,000 per year. Canada Study Grants, which will be provided through the Canada Student Loans Program, will be available during the upcoming academic year.
Speaking of the Canada Student Loans Program, there are noteworthy changes designed to assist the nearly one in three students who take advantage of student loans to finance their education.
Under the Canada Student Loans Program, students are eligible for certain financing and the government is kind enough to pay interest on the debt while the student is in school - now that’s a deal. Six months after graduation the student becomes obligated to commence repayment of the loan, usually over the next 9 ½ years.
In the past the government has provided interest relief to former students facing financial hardship. Starting April 1998, the income threshold at which interest relief ceased to be available increased from $20,460 to $22,300. Then in 1999, a graduated income relief will be introduced, which will see interest relief being phased out as the former student’s income rises.
If the former student finds that their degree wasn’t particularly marketable and they’re still subject to financial hardship, they may be eligible for debt-forgiveness of up to $10,000.
Still on the subject of student loans, for the first time since their introduction way back in 1964, Canadians can look forward to tax relief for interest paid on their student loans. That’s right, if you’re paying interest on your student loan, you will be eligible to claim a special 17% federal tax credit on the interest portion of the amount paid in the year. After accounting for the impact of provincial taxes, this credit will reduce the claimant’s tax liability by an amount equal to about 25% of the interest paid. For example, if you paid $2,000 of interest on your student loan during the year, this new credit will save you about $500 of income tax.
In my next article, I’ll review some additional income tax related items that form part of the COS.
Jim Maroney is a chartered accountant with Andrews Brown Maroney in Maple Ridge
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