OSAP and Student Loan Repayment in Canada: Grace Periods, RAP, and the Payoff Math

By Jordan Ellis · Published August 24, 2026 · Reviewed September 14, 2026

Quick Answer

Canada Student Loans give you 6 months after leaving school before payments start, and since 2023 no interest accrues on the federal portion — though provincial portions in some provinces still charge interest (Ontario's charges prime + 1%). Payments default to a 9.5-year schedule but can be lowered or paused through the Repayment Assistance Plan (RAP) if your income is low — under RAP, the government covers the interest and eventually principal for qualifying borrowers. Student loan interest is tax-deductible (a credit worth roughly 19% of the interest paid in Ontario for 2026: 14% federal plus 5.05% provincial). Pay aggressively only if your rate exceeds what safe investing returns; with the federal portion at 0%, minimum payments plus investing the difference usually wins.

Student loans are the gentlest debt most Canadians ever hold — a 6-month grace period, a 0% federal rate, and a government plan that can cut payments to zero. Here’s how to run the system instead of fearing it. (Modelling your own payoff: loan calculator.)

The timeline after graduation

Months 0–6: grace period. No payments required. Federal interest: zero, permanently (since 2023). Provincial portions vary — Ontario’s accrues at prime + 1% during grace
Month 6: consolidation. The NSLSC sets your payment on a default 9.5-year schedule — you can shorten or lengthen it
Anytime: RAP. Income low? The Repayment Assistance Plan recalculates to as little as $0/month, with Ottawa covering the interest shortfall — and principal after 5 years

The rate-based payoff order

Not all student debt is equal, so don’t treat it equally:

Federal portion (0%): free money. Minimum payments, always. Every extra dollar prepaid here is a dollar earning 0%
Provincial portion (~prime + 1%, call it 6–7%): a guaranteed 6–7% return if prepaid — good, not urgent. It ranks after any 19.99% credit card debt and the employer RRSP match, roughly alongside TFSA investing
Private student lines of credit: variable, no tax credit, no RAP — attack these first of all

The debt avalanche method orders all of this correctly; the debt payoff calculator shows the timeline either way.

The two freebies everyone misses

The interest tax credit. Interest on government student loans earns a non-refundable credit (14% federal for 2026, plus the provincial rate) — and it carries forward 5 years, so claim it in the first year you owe real tax. On $800 of interest in Ontario, that’s about $150 back.

RAP as a bridge, not a bailout. Graduates in low-income years (internships, arts careers, first startups) treat RAP’s $0 payment as failure. It isn’t — it’s the system working. Zero-dollar RAP months keep the loan in perfect standing while you build income, and credit scores stay clean. The failure mode is ignoring the loan into CRA collections — tax refunds and GST credits seized, garnishment, and a debt that even bankruptcy can’t touch for 7 years after school.

The one-line strategy: kill the private and high-interest debt, ride the 0% federal portion to the last scheduled payment, RAP the lean years without shame, and put the surplus toward the TFSA that actually compounds.

Official sources

Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed September 14, 2026.

Canada Student Grants and Loans (Employment and Social Development Canada)
Repayment Assistance Plan for student loans (Employment and Social Development Canada)

Frequently Asked Questions

When do I have to start repaying OSAP?

Six months after you stop being a full-time student — graduation, withdrawal, or dropping below full-time all start the clock. No payments are required during those 6 months, and the federal portion charges no interest at all, ever (interest was eliminated in 2023). Ontario's provincial portion does accrue interest during the grace period at prime + 1%. You can start paying early anytime without penalty.

What is the Repayment Assistance Plan (RAP)?

RAP recalculates your payment based on family size and income — borrowers below the income threshold (roughly $40,000-$45,000 for a single borrower, higher with dependents) can have payments reduced to zero, with the government covering the interest your payment misses. After 5 years on RAP (or 10 years out of school), the government also starts paying down principal. Apply through your National Student Loans Service Centre account; you must re-apply every 6 months.

Is student loan interest tax deductible in Canada?

Yes — interest on government student loans (Canada Student Loans and provincial loans like OSAP) qualifies for a non-refundable tax credit worth 14% federally (2026) plus the provincial rate. It is a credit, not a deduction, so it reduces tax owing rather than taxable income — and it can be carried forward up to 5 years if you owe no tax while in school or on RAP. Interest on private student lines of credit does not qualify.

Should I pay off my student loans fast or invest instead?

Compare rates. The federal portion at 0% interest is free money — make minimum payments forever and invest the surplus; prepaying a 0% loan earns you nothing. Provincial portions at prime + 1% (roughly 6-7%) sit in the grey zone: a guaranteed 6-7% return by prepaying versus expected 6-8% from equities with risk. Most planners put high-interest debt first, then the employer RRSP match, then a split between provincial loan prepayment and TFSA investing.

What happens if I never pay my student loans?

Government student loans survive almost everything: they are not erased by ignoring them, and after 9+ months of missed payments the loan goes to CRA collections, which can seize tax refunds and GST credits and garnish wages without a court order. Bankruptcy only discharges student loans after you have been out of school for 7 years. RAP exists precisely so it never reaches this — zero-dollar payments under RAP keep you in good standing.