Firstly, many Waterloo STEM students already do this based on the school's curriculum of interweaving work and study terms. Fortunately and unfortunately, these are exactly the students being lured away into the US.
Secondly the Ontario Government (i.e. Wynne Government and potentially NDPs), has lowered tuition costs for families making under 160k by 30% with the intention of further lowering the costs to (eventually) free in the future. In other words, they fully intend to increase government debt to fund tuition costs for all Ontario students (except if you're middle class and higher). But guess what? Will this really have an impact on Waterloo STEM grads? Unlikely. Increasing payback doesn't affect the students who CAN afford it.
The new government has introduced a Canadian equivalent to SBIR, called Innovative Solutions Canada [1], which seems very promising. It's basically a carbon copy of the American SBIR program, which had had a remarkable impact in the US for bootstrapping small high tech firms that are too risky for VCs to the point where they can seek investment.
The other piece of the puzzle is the VC environment. Canada simply does not have a cadre of experienced venture capitalists with access to funds and willingness to take risks. Until that changes, Canadian tech companies will continue to hop the border after reaching a certain size, because it's in their best interest to leave for the US where funding is better.
there's a pretty simple fix for that: have the government bill/charge you the subsidy when you're in university. it's not a student loan, and it doesn't appear on your credit report. you pay it back when you start working (every dollar you pay in taxes pays back $x that debt. you don't get charged intrest or are obligated to pay it as long as you stay in canada, but if you move to the US (or any other country), you start accumulating intrest and have to work out a payment plan.