The Impact of Student Debt on Long-Term Financial Planning

October 7, 2026

Stephanie Gilman

For a large share of the Canadian workforce, the impact of student debt doesn’t end at graduation. According to Statistics Canada, the average education debt postsecondary graduates carry is around $25,000, and the federal student loan portfolio alone reached $28.5 billion as of July 2025, according to OSFI’s actuarial report on the Canada Student Financial Assistance Program. That’s the starting point for a lot of people’s financial lives, and student loan planning affects decisions for years afterward.

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How student debt affects long-term financial planning

The most visible effects show up in major life milestones. Student debt and home buying challenges are closely linked, along with postponed retirement savings and, for some, career decisions driven more by income needs than interest or fit. A graduate managing loan payments alongside rent in a major city often doesn’t have much room left over for a down payment fund or an RRSP contribution — and that gap compounds over time.

But there’s a critical footnote to all this: the rules changed in 2023, and a lot of advice on student debt repayment hasn’t caught up.

Student loan interest: what changed and why it matters

As of April 2023, the federal government eliminated interest on the federal portion of Canada Student Loans. Several provinces, including British Columbia, Manitoba, Nova Scotia and Prince Edward Island, have done the same for their provincial portions. This applies to both new and existing federal student loans. Interest that accumulated before April 1, 2023 still needs to be repaid, but no new interest accrues on the federal portion of any loan from that date forward, regardless of when it was originally taken out.

This is a bigger deal than it might sound, and it changes the calculus for loan repayment strategies. A lot of financial advice still treats education debt the way it treats high-interest debt: pay it down aggressively, before anything else. That logic made sense when interest was accruing. It makes a lot less sense on a 0 per cent loan, and should be reconsidered as part of any debt or financial planning.

If the federal portion of a loan carries no interest, putting extra money toward an RRSP, especially if there’s an employer match, or a first home savings account may build more long-term wealth than prepaying a balance that isn’t growing. This isn’t true for everyone. Provincial loans in some regions still carry interest, and private lines of credit almost always do. But for a growing share of borrowers, the traditional “debt first” mindset deserves more nuanced thinking.

” The long-term effects of student debt on finances are often underestimated because they’re invisible in the moment. ”

Balancing savings and student debt repayment

For most people carrying student debt, the real challenge is figuring out how to split limited income between loan repayment, saving and everything else competing for the same dollars. Financial planning with large student loans often comes down to sequencing, not just willpower.

Here are a few strategies to manage student loan repayment.

Know which debt is actually costly: Before deciding where extra money should go, check the interest rate on each portion of a loan. Zero per cent federal debt and five per cent provincial or private debt aren’t the same problem, and they shouldn’t be treated the same way.

Don’t skip retirement contributions entirely: Even small, consistent RRSP contributions during the years when debt feels heaviest can make a meaningful difference over decades, particularly if an employer matches what you put in.

Use windfalls strategically: Tax refunds, bonuses or raises are among the best repayment plans for student loans and one of the most effective ways of paying off student debt faster, since they let someone make extra payments on genuinely high-interest debt without disrupting a regular budget.

Managing student loans and retirement savings: the long view

The long-term effects of student debt on finances are often underestimated because they’re invisible in the moment. Money that goes toward debt repayment in someone’s twenties isn’t available to invest, and the impact of student loans on wealth building isn’t a missed payment — it’s decades of compound growth that never happened.

This is where the math can really add up: a dollar contributed to an RRSP at 25 is worth meaningfully more by retirement than the same dollar contributed at 35, simply due to time in the market. Student debt that delays saving by even five or ten years has a real cost, even if that cost doesn’t show up on any statement.

What this means for employers

Student debt and student loan management are workforce topics as much as they are personal finance ones. Employees managing significant debt loads may be more likely to prioritize immediate income over long-term career development opportunities.

Some Canadian employers have already taken action to address this through benefit programs. Canada Life offers what it describes as the first program of its kind in Canada: a Student Debt Savings Program that matches employer contributions to a group retirement plan as employees make their regular student loan payments. Rather than forcing a choice between paying down debt and saving for retirement, the program runs both simultaneously — a model worth paying attention to for any employer looking to differentiate on benefits.

For HR and payroll professionals, understanding how student debt shapes employees’ financial decisions, and how recent policy changes have shifted the overall picture, is increasingly part of supporting a financially healthy workforce.

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