True Cost of Student Loan Debt in Canada: Interest, Default Penalties & Relief (2026)

A $30,000 student loan costs far more than $30,000. On a standard 10-year repayment with the provincial portion charging prime + 1%, total repayment reaches $37,800 or more. Default makes it worse — CRA adds a 5% penalty, daily compounding interest, and can garnish 50% of your net pay without a court order. RAP is the cheapest path at $0 per month for qualifying borrowers. A consumer proposal costs 20 to 40 cents on the dollar for non-student debt. Knowing the true cost of each path changes the math on what to do next.

What $30,000 in Student Loans Actually Costs Over 10 Years

The total you repay depends on your loan split between federal and provincial, and whether you stay current or default.

The federal government eliminated interest on Canada Student Loans in 2023. That means the federal portion of your loan carries 0% interest. But most borrowers carry a provincial portion too — and provinces still charge interest. Ontario charges prime + 1% on the OSAP provincial portion. Alberta charges prime + 1%. Quebec charges prime + 0.5%.

That interest gap is the first hidden cost. The second is what happens when you cannot keep up with payments.

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Interest Rates on Federal and Provincial Student Loans (2026)

Federal Canada Student Loans carry 0% interest. Full stop. The 2023 federal budget permanently removed the interest charge on the federal portion. This is the single best feature of the Canadian student loan system — your federal balance does not grow.

Provincial rates are a different story. Each province sets its own interest rate on the provincial portion of your student loan. In Ontario, the OSAP provincial portion charges prime + 1%. With the prime rate at 5.45% in early 2026, that means Ontario borrowers pay 6.45% on their provincial balance. BC eliminated provincial student loan interest in 2024. Alberta and Quebec still charge interest.

Sanjay in Scarborough owes $32,000 total — $20,000 federal and $12,000 OSAP provincial. His federal portion costs $0 in interest. His provincial portion costs $64 a month in interest alone at 6.45%. Over 10 years, he pays $7,680 in interest just on the provincial portion. If he earns enough to pay $400 a month total, $64 goes to interest and $336 goes to principal. At that rate, payoff takes 8 years and 2 months.

The interest rate matters most for borrowers who can only afford minimum payments. When two-thirds of your payment covers interest, your principal barely moves. That is the slow bleed of provincial student loan interest.

If your income is low, RAP eliminates the payment entirely — and the government covers the interest on the federal portion during Stage 1. The provincial portion depends on whether your province participates in integrated RAP. Ontario does. Alberta does not.

Default Penalties: What Happens When NSLSC Sends You to CRA

Your federal student loan defaults after 270 days of non-payment. At that point, the NSLSC closes your file and transfers it to CRA for collection. This transfer changes everything about what your debt costs.

CRA adds a 5% penalty on the outstanding balance immediately. On a $30,000 default, that is $1,500 added on day one. Prescribed interest then begins compounding daily on the full balance — principal plus penalty. The prescribed rate fluctuates but has ranged from 5% to 10% in recent years. At 8%, that is $6.58 per day on a $30,000 balance — nearly $200 a month in interest alone.

Within the first year of CRA transfer, a $30,000 student loan grows to $33,900 or more. After two years without payment: $38,000. After three years: $42,500. The daily compounding is relentless. Every month you do not pay, the penalty and interest pile onto the principal, and next month’s interest charges against the larger number.

Jade in Kamloops defaulted on $26,000 in Canada Student Loans after leaving her nursing program in 2022. She ignored the NSLSC letters. Twelve months after default, CRA transferred her file. The 5% penalty added $1,300. Two years of prescribed interest added another $4,680. Her $26,000 balance became $31,980 — and she had not made a single payment toward the increase. She only discovered the new balance when CRA seized her $3,400 tax refund.

The cost of default is not just the penalties. It is the cost of lost options. After CRA transfer, RAP is no longer available through normal channels. Your account is in collections, not repayment. The cheapest option — $0 monthly payments through RAP — disappears.

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CRA Collection Costs: Garnishment, Tax Seizure, and Interest

Once CRA holds your student loan file, they deploy the same collection tools they use for tax debt. These tools carry their own costs — direct and indirect.

Wage garnishment: CRA issues a Requirement to Pay to your employer. Your employer must comply or face personal liability. CRA can take up to 50% of your net pay. On a $3,200 monthly take-home, that is $1,600 a month redirected to CRA. Your employer cannot refuse.

Tax refund seizure: CRA intercepts your annual tax refund and applies it to the student loan balance. If you were expecting a $2,800 refund, it goes to CRA. GST/HST credits, the Canada Child Benefit, and other federal payments can also be intercepted.

Bank account freeze: CRA can issue a Requirement to Pay to your bank. The bank freezes your account and sends available funds to CRA. No court order required. No advance warning required.

Dylan in Thunder Bay earned $52,000 a year at a paper mill. After his $34,000 student loan defaulted and transferred to CRA, they garnished $1,040 from every biweekly paycheque — nearly 40% of his gross pay. His rent was $1,350 a month. After garnishment, his take-home for rent, food, gas, and everything else was $1,080 every two weeks. He fell behind on rent within two months.

The indirect cost of garnishment is the financial cascade it triggers. You miss rent. You miss car payments. You start using credit cards for groceries. The credit card balances grow at 20% interest. Within 6 months, the student loan garnishment has created $8,000 to $15,000 in new debt. That new debt was not part of the original problem — the garnishment created it.

A consumer proposal or bankruptcy stops all garnishment the day it is filed through a stay of proceedings under the BIA. Even if the student loans survive the filing because you are inside the 7-year window, the garnishment halts during the insolvency process.

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RAP Cost: $0 Payments and 15-Year Forgiveness

RAP is the lowest-cost option for qualifying borrowers. The program charges no fees. The application takes 15 minutes through the NSLSC portal. If you qualify, your payment drops to $0.

Here is the actual cost math for RAP over 15 years on a $30,000 federal student loan. If your income stays below the threshold for the full 15 years, you pay $0 in total. The government covers interest during Stage 1 (months 1–60). The government reduces your principal during Stage 2 (months 61–180). At the end of 15 years, any remaining balance is forgiven.

The trade-off is time. You reapply every 6 months. Your income must stay below the threshold each time. If your income rises, your payment rises — but it is capped at an affordable amount based on the formula. If your income drops again, the payment drops again.

RAP also carries no credit impact. Your account stays in good standing with the NSLSC. No missed payments appear on your credit report. Your credit score is unaffected. Compared to the R7 from a consumer proposal or the R9 from bankruptcy, RAP is invisible to lenders.

The cost of RAP is $0 in direct payments, $0 in fees, and $0 in credit damage. The only cost is the 15-year timeline and the requirement to keep reapplying. For borrowers earning under $40,000, this is the best deal in Canadian debt relief.

Consumer Proposal Cost on Student Loan Files

Consumer proposals cost 20 to 40 cents on the dollar for the debts they cover. LIT fees are included in the payment — you do not pay them separately. The total cost depends on how much non-student debt you carry and whether your student loans qualify for inclusion.

Inside the 7-year window: Student loans survive the proposal. You pay only on non-student debt. On $18,000 in credit card and CRA debt at 30 cents on the dollar, the total proposal cost is $5,400 — paid at $113 a month for 48 months or $90 a month for 60 months. Student loans are handled separately through RAP at $0.

Outside the 7-year window: Student loans are included in the proposal. On $30,000 in student loans plus $18,000 in other debt ($48,000 total) at 30 cents on the dollar, the total proposal cost is $14,400 — paid at $240 a month for 60 months.

Fatima in Barrie finished her studies in 2017 — 9 years ago. She owes $25,000 in Canada Student Loans, $13,000 on two credit cards, and $4,000 on a payday loan she took to cover a car repair. Her LIT filed a consumer proposal for all $42,000 at 28 cents on the dollar: $11,760 over 60 months at $196 a month. Her previous minimum payments totalled $890 a month. She saves $694 every month for the next 5 years — and all three debts are discharged at the end.

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Bankruptcy Cost for Student Loan Discharge

Bankruptcy costs depend on income, assets, and whether it is your first filing. The base cost for a first-time bankruptcy with no surplus income is approximately $1,800 paid over 9 months. Surplus income changes the math.

Surplus income applies when your monthly net income exceeds the government threshold — $2,543 per month for a single person. You pay 50% of the amount above the threshold. At $3,200 net monthly income, surplus is $657 — meaning $329 a month in surplus payments. With surplus income, a first-time bankruptcy extends from 9 to 21 months.

On a $30,000 student loan (past the 7-year mark) with $3,200 monthly net income, bankruptcy costs approximately $6,909 over 21 months. That is $329 in surplus income payments times 21 months. The student loans are discharged along with other unsecured debt.

The hidden cost of bankruptcy is the credit impact. An R9 rating stays on your credit report for 6 years after discharge — 7 years in some provinces. A consumer proposal’s R7 rating clears 3 years after completion. If you plan to buy a home or car in the next 5 years, the extra credit recovery time from bankruptcy has a real dollar cost in higher interest rates on future borrowing.

How to Pay the Least Total Dollars

The cheapest path depends on your timeline and income.

If you are under 7 years and earn under $40,000: RAP alone costs $0 for the student loans. Add a consumer proposal for non-student debt at 20–40 cents on the dollar. Total cost: proposal payments only.

If you are over 7 years and earn under $40,000: Bankruptcy is likely the cheapest option. Low income means low or zero surplus income payments. Base cost of approximately $1,800. All debts discharged in 9 months.

If you are over 7 years and earn over $40,000: Compare consumer proposal versus bankruptcy with your LIT. The proposal often costs less in total when surplus income payments would be high. Run both scenarios before choosing.

If you are in default with CRA: Every month of garnishment costs you 50% of your net pay plus the daily compounding interest CRA charges. Filing a consumer proposal or bankruptcy stops the garnishment immediately. The cost of waiting exceeds the cost of filing within weeks.

Martin in Oshawa waited 14 months after CRA started garnishing before talking to an LIT. During those 14 months, CRA took $22,400 from his paycheques and his balance only dropped by $16,100 — the other $6,300 went to interest and penalties. If he had filed a consumer proposal in month one, his total proposal cost would have been $9,800. He paid $22,400 and still owed more than when the garnishment started.

The most expensive option is always doing nothing. Interest compounds. Penalties accumulate. Garnishment drains cash that could go to a proposal or bankruptcy filing. Every tool in the system — RAP, consumer proposal, bankruptcy — costs less than the default path.

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This article is educational only and does not constitute legal or financial advice. Consult a Licensed Insolvency Trustee for advice specific to your situation.