This guide shows which part of your loan costs money, what an extra payment actually saves, and when keeping cash in the bank makes more sense.

The short answer

Paying off the federal part of your student loan early saves you no interest, because Canada Student Loans have been interest-free since April 1, 2023. If your loan has a provincial part that charges interest, such as Ontario’s prime plus 1%, extra money should go there first. Federal rules let you make extra payments at any time.

Paying off a 0% loan early is not a mistake. It just buys peace of mind rather than savings, while cash in a savings account keeps earning interest and stays available for emergencies.

Which part of your student loan charges interest

Most students borrow from two lenders at once: the federal government and their province. In most provinces the two parts are combined into one integrated loan managed by the National Student Loans Service Centre (NSLSC), but each government sets its own interest rules. Alberta, Nova Scotia and Prince Edward Island loans are repaid separately from the federal part. Quebec, Nunavut and Northwest Territories loans are repaid directly to the province or territory.

Sources: NSLSC interest rate table, Government of Ontario and Student Aid Alberta, checked November 3, 2026. Alberta cut its rate to prime as of July 1, 2023. Where the NSLSC table shows no rate, confirm the rule with your province.

Prime is not a fixed number. The Bank of Canada’s weekly prime rate series showed 4.45% for the week of October 21, 2026, which puts Ontario’s rate at about 5.45%. Each lender sets its own prime, and the Bank of Canada notes that prime is influenced by its policy rate, which it raised to 2.5% on October 28, 2026. Check the current rate in your NSLSC account.

What an extra $5,000 saves: a worked example

Take a hypothetical Ontario graduate with $12,000 in Canada Student Loans and $8,000 in Ontario Student Loans. Assume a 10-year repayment schedule, an Ontario rate of 5.45% that stays flat, and interest calculated monthly. This person has $5,000 saved when repayment starts.

During the six-month grace period the federal part does not grow. The Ontario part picks up about $220 of interest, which is added to the balance, so repayment starts on about $8,220. The regular payments are $100 a month on the federal part and $89.01 on the Ontario part.

Hypothetical example calculated by Gizly. Ontario interest includes the $220 charged in the grace period. Regular payments stay the same after the lump sum, so the loan ends sooner.

Putting the money on the Ontario part saves about $2,155 in interest and clears that loan 80 months sooner. Putting the same money on the federal part saves nothing. It only moves the finish line on a loan that was already free.

The gap grows when rates rise. At 5.70%, a quarter point higher, the Ontario part would cost about $2,817 in interest with regular payments, including $231 in the grace period. The same $5,000 lump sum would then save about $2,267.

Should you pay the loan or keep the cash?

An extra payment on a 0% loan cannot save interest, so the question for the federal part is flexibility. Cash in a savings account earns interest and you can get it back in an emergency. Money sent to the NSLSC is gone, and the federal lump-sum page notes you still need to make your regular monthly payments.

For a provincial part that charges interest, compare the loan rate with what your savings earn after tax. Each dollar of prepayment on the Ontario part earns a guaranteed, tax-free return equal to the loan rate, about 5.45% in our example. A savings account would need to beat that after tax to come out ahead.

How extra payments are applied

Timing matters. The federal lump-sum payment page says payments made while you are in school or during the six-month non-repayment period go to principal. Once you are in repayment, payments go to any outstanding interest first, then to principal.

For an Ontario loan, paying down the balance before or during the grace period stops grace interest from building on the amount you pay. In the example, the $220 comes from leaving the full $8,000 untouched for six months. If you have an integrated loan, confirm with the NSLSC which portion an extra payment will go to before you send it.

Repayment term and help if you cannot pay

The federal repayment page says you can extend repayment up to 174 months to make payments smaller. A longer term costs nothing extra on the federal part. On a provincial part that charges interest, every extra month adds interest.

If payments are too high, the Repayment Assistance Plan (RAP) can reduce them, sometimes to zero. You qualify based on monthly gross family income and family size, and you reapply every six months. The maximum repayment period under RAP is 15 years, or 10 years for people with a disability. Provincial thresholds may be different.

Source: Government of Canada, Repayment Assistance Plan page (modified July 31, 2026), checked November 3, 2026. Earning more than the threshold can still qualify you for reduced payments.

How to build your payoff plan

1. List each portion. Log in to your NSLSC account, or your province’s portal if you repay separately, and note each balance and rate.
2. Check which part charges interest. Use the table above, then confirm on your province’s student aid site.
3. Never miss a regular payment. Extra payments do not replace the monthly amount.
4. Send extra money to the part with interest. Confirm where the payment was applied after it posts.
5. Recheck after rate changes. A floating provincial rate moves with prime, so revisit your plan after each Bank of Canada decision.
6. Ask for help early. If payments strain your budget, apply for RAP before you fall behind.

Frequently asked questions

• Sources, checked November 3, 2026: NSLSC: Frequently asked questions (interest elimination and provincial rate table); Canada.ca: Start repaying your student loans (modified 2025-12-16); Canada.ca: Make a lump-sum payment (modified 2025-12-16); Canada.ca: Update your payment (modified 2025-12-16); Canada.ca: Repayment Assistance Plan (modified 2026-07-31); Government of Ontario: Pay back OSAP (updated May 5, 2026); Student Aid Alberta: Keep your loans interest-free; Bank of Canada: Policy interest rate; Bank of Canada: Prime rate series V80691311 (latest week October 21, 2026).
• Method: Hypothetical loans of $12,000 federal and $8,000 Ontario at 5.45% (prime 4.45% plus 1%), interest compounded monthly, six-month grace period, 120-month schedule, $5,000 lump sum at the start of repayment with regular payments unchanged. Calculated with a month-by-month schedule in Python and checked against the closed-form loan payment and payoff formulas.

Important: This guide is general information, not legal or financial advice. Interest rules and rates for provincial loans change, so confirm yours with your province or the NSLSC. Gizly is not paid by any lender mentioned here. See our affiliate disclosure.