I have to pick either the fixed or the floating interest rate on my student loan consolidation agreement. Whats the difference?
A. The fixed rate won’t change over the life of your loan payments. The floating rate will go up and down to follow changes in the prime rate, which is a basic borrowing interest rate set by banks, a little higher than the current Bank of Canada rate. Because fixed rates mean you know the cost won’t get any higher, they come with a higher premium over the prime rate. The Canadian government charges Prime + 2.5% for floating student loans but fixed student loans are set at Prime + 5%. This makes Canada’s fixed interest student loans among the most expensive student loans in the world. When it comes to provincial student loans, some provinces charge the same rates as the federal government and some charge less. But even if they charge less overall, they always charge that higher premium for fixed rate loans.
