Student Line of Credit vs. Loan

Use government student loans first. Always. They’re interest-free on the federal portion and come with repayment protections no bank can match. A student line of credit (LOC) is a private bank product that fills the gap when government funding runs out or isn’t available to you.

Side-by-Side

	Government Student Loan	Student Line of Credit
Who provides it	Federal + provincial governments	Banks and credit unions
Based on financial need?	Yes	No. Based on creditworthiness and program
Interest while in school	None	Charged immediately; you pay monthly
Federal interest rate	0% permanently (since April 2023)	Prime + 0% to 1% typically (variable)
Grace period after school	6 months	6–24 months interest-only (varies by lender)
Repayment assistance	Yes (RAP available)	No income-based protections
Co-signer required?	No	Often yes, for undergrad students
Bankruptcy	Dischargeable after 7 years out of school	Treated as regular private debt
Tax credit on interest paid	Yes	No

Government Student Loans

Government loans, like OSAP in Ontario, bundle federal and provincial aid in a single application. The advantages are hard to beat.

The federal portion carries 0% interest during school, during the grace period, and during repayment, permanently eliminated as of April 1, 2023. No payments are required while you’re enrolled. After graduation, you get a six-month grace period before repayment starts. If your income is low after school, the Repayment Assistance Plan (RAP) caps your payments at 10% of your household income and can reduce them to zero. After seven years out of school, government loans can be discharged in bankruptcy.

The main constraint: amounts are capped by assessed financial need. Once you hit the government maximum, that’s it.

Student Line of Credit

A student LOC is a revolving credit product from a bank. You get a credit limit, draw from it as needed, and pay interest only on what you’ve borrowed. Not the full limit.

Interest starts accruing the day you first draw on it, and you’re required to make monthly interest payments while in school. This is the most important practical difference from a government loan.

Rates are variable, tied to the bank’s prime rate:

Undergraduate: prime + 0.5% to prime + 1%
Professional and graduate programs: prime to prime + 1%
Medical and dental: as low as prime minus 0.25% (banks compete hard for these students)

As of early 2026, Canada’s prime rate sits around 4.45%, so effective rates range roughly 4.2%–5.45% depending on your program and lender.

After graduation, most banks offer 12–24 months of interest-only payments before principal repayment kicks in.

Credit limits by program:

Undergraduate: typically $10,000–$80,000
Graduate and professional (law, MBA, pharmacy): up to $125,000–$175,000
Medical, dental, veterinary: up to $325,000–$400,000

Most banks require a co-signer for undergraduate students without a credit history. Professional program students often qualify without one. If you’re starting from scratch, see our guide on how to build credit in Canada.

The Differences That Actually Matter

Interest during school. A government loan costs you nothing while enrolled. A LOC starts charging interest the day you draw on it. On $30,000 borrowed over four years, this gap adds up.

Repayment protection. If you graduate into a low-income period, RAP on your government loan can eliminate your payments entirely. The government covers the shortfall. A bank LOC has no equivalent. If you can’t pay, you negotiate, but there’s no legislated safety net.

Bankruptcy. Government loans can be discharged in bankruptcy after seven years out of school (five years with court approval in cases of hardship). A student LOC is treated like any other private debt.

Tax treatment. Interest paid on a government student loan generates a federal non-refundable tax credit. Interest on a bank LOC doesn’t.

Flexibility. A LOC lets you borrow exactly what you need, when you need it. Government loans disburse a fixed amount each term. If you need more mid-year, you wait for the next application cycle.

The Right Order

Apply for government student aid first. OSAP, StudentAid BC, or your provincial equivalent. Even a partial grant is free money, and the federal loan is 0% interest.
Borrow your full government maximum before touching a LOC.
Use a student LOC to fill the gap for costs that exceed government funding.
Never use a LOC before a government loan. The government loan is cheaper on every measure and comes with more protections.

When a LOC Makes More Sense

Students in medicine, dentistry, law, pharmacy, optometry, or MBA programs often find that tuition far exceeds government loan maximums. Banks compete aggressively for these borrowers with favourable terms, and a LOC becomes the primary funding tool. Students who don’t qualify for government aid due to income thresholds, immigration status, or a reached lifetime limit are also better served by a LOC than by having nothing.