OSAP Loans and the Burning Question… Variable vs. Fixed?

Attention Students!

The Ontario Students Assistance Program stipulates that Interest starts to accrue on your loan when you finish your program.

·         The interest rate on the provincial portion of your loan is the prime rate of interest plus 1%.

·         On the federal portion of your loan, you can choose the prime rate of interest plus 2.5%, or lock it in at prime plus 5%.

Given that the Prime rate (according to the Bank of Canada) is currently 4.75%, accordingly the Provincial rate is 5.75% and the Federal rate is either 7.25% (variable) or 9.75% (fixed).

This brings us to the million (or rather, multiple thousand) dollar question… should you go variable or fixed?

Looking at the last 10 years, the variable rate has only surpassed that of the fixed twice and by only 0.25% at that.

So unless you are a very strong believer in hyperinflation, history would dictate sticking with the variable option.