OSAP vs private loans (2025): interest, grace, repayment

Picking the right loan mix saves real money. In 2025, OSAP combines a 0% interest federal portion with an Ontario portion that floats at prime + 1%. Private student lines of credit (SLOCs) ride prime too, often prime to prime + 1.5%, and usually start with interest-only payments. This guide shows exactly how those differences affect your monthly costs—with a clear table and a worked example using today’s prime rate.

What’s new in 2025 (quick facts)

• Federal (Canada Student Loan) interest: permanently 0% (since Apr 1, 2023).
• Ontario (provincial) OSAP interest: variable at prime + 1.0%; applies once you enter repayment.
• Prime rate today (Oct 30, 2025): 4.45% at major banks.
• Prime rate moves. On Oct 29, 2025 the Bank of Canada cut its policy rate to 2.25%; Big Six banks subsequently lowered prime to ~4.45%. Use today’s posted prime from your lender when modelling costs.
• Grace / non-repayment (leaving full-time): 6 months; Ontario portion accrues interest, federal stays at 0%.

OSAP vs private loans: side-by-side (2025)

Feature	OSAP (Canada + Ontario)	Private student line of credit (SLOC)
Interest rate	Federal: 0% (permanent). Ontario: variable prime + 1% (e.g., 5.45% today).	Variable, typically prime to prime + 1.5%; program-dependent (often lower for professional programs).
While in school	Keep loans interest-free by maintaining interest-free status (CIFS).	Interest-only minimum payment each month on amount used.
Grace after school	6 months; Ontario portion is charged interest. Federal stays 0%.	Many banks keep interest-only for up to 24 months after graduation; then principal + interest.
Start of principal repayment	After grace (unless you start early). Default amortization about 114 months (9.5 years); flexible.	After grace window ends, bank converts to amortizing payments; term varies (often 5–10 years).
Credit/co-signer	No co-signer; standard eligibility rules via OSAP/NSLSC.	Credit check; co-signer often required if limited history.
Repayment help	Repayment Assistance Plan (RAP): payments can be reduced to $0 if income under threshold; re-apply every 6 months.	No RAP; lender hardship options vary.
Tax credit on interest	Yes (Line 31900; government loans only). Unused interest can be carried forward for up to 5 years and claimed later.	No (LOC interest not eligible).

Sources: NSLSC, Ontario OSAP pages, CRA, RBC/TD product pages, and bank prime-rate pages.

Notes on the table

• Ontario interest formula: prime + 1% on the provincial portion once you’re in repayment. Federal portion remains 0%.
• “While in school” interest-free for OSAP requires your loans to be placed/kept in interest-free status (CIFS) each study period if you’re not actively receiving new OSAP.
• RBC confirms interest-only minimums in school and a 24-month interest-only period after graduation before principal payments begin.

Worked example (today’s numbers)

Assumptions (transparent):

• Total need: $20,000.
• Today’s prime: 4.45%; Ontario OSAP rate = prime + 1% = 5.45%.
• Standard OSAP amortization after grace: 114 months (9.5 years).

A) OSAP only

OSAP is a blend of federal 0% and Ontario prime + 1% portions (share varies by assessment; example shown for two common splits):

• 70% federal / 30% Ontario → blended payment ≈ $190/month; ~$1,700 total interest over 9.5 years.
• 60% federal / 40% Ontario → blended payment ≈ $195/month; ~$2,267 total interest over 9.5 years.
  (We used standard amortization math; your exact split and term on NSLSC may differ.)

B) Private SLOC at prime + 1% (5.45%)

• In school (2 years): interest-only ≈ $90.83/month → $2,180 interest over 24 months.
• After school (5-year paydown assumption): ≈ $382/month; ~$2,894 interest over the term.
• Total interest: ~$5,074 (≈ 3× the 70/30 OSAP scenario).
  (Assumptions use typical bank practices; RBC confirms interest-only while in school and 24 months after grad; exact margins/terms vary by lender and program.)

Takeaway from the example: With today’s illustrative prime (4.45% -> Ontario 5.45%), OSAP’s blended effective rate is only about 1.64% (70/30 split) to 2.18% (60/40) – calculated as the Ontario share × 5.45% – which is far below typical SLOC pricing. The SLOC’s flexibility is useful, but long interest-only periods usually make lifetime interest much higher.

Rates change: re-run your numbers whenever prime moves.

When a private SLOC still makes sense

• OSAP not enough / ineligible costs (e.g., certain professional prep or living costs beyond OSAP caps).
• Cash-flow control: interest-only during school can help, but budget for a jump in payments after the grace window (banks will convert to principal + interest).
• Professional programs: some lenders offer better-than-prime pricing (e.g., medical/dental). Always confirm your prime link (±margin) in writing.

Practical steps (checklist)

1. Max OSAP first (grants + 0% federal loan). Use the OSAP estimator and confirm interest-free status if you pause applying.
2. Know your prime (it moves). Every 0.25% change affects SLOC and the Ontario portion of OSAP.
3. Plan for grace: OSAP has 6 months; private LOCs may allow up to 24 months interest-only, but that’s still interest cost.
4. Use RAP if income is tight (re-apply every 6 months; thresholds updated in 2025).
5. Claim the tax credit for government loan interest (Line 31900). No credit for bank LOC interest.

FAQ