After years of practicing, you have finally created and delivered one or more little minions into the world. At first, you will just be happy if they learn how to eat, sleep, and toilet on their own. Eventually, you’ll want to ensure that they get a higher level of training and launch into independence. Learn more about the cost of post-secondary education in Canada. Consider how much you plan to pay, and different ways to do that.
There is a mix of sources of money to help with training from the government, schools, you, and your offspring. They each have different requirements and pros/cons. Learn about them below. The right mix will be different for everyone, but knowing about the options helps you to consider them all. Importantly, there are options for those not born into wealthy families and the government incentives are even geared towards that.
How Much Does Post-Secondary Education Cost?
Well, getting your basement back ain’t gonna be cheap. Tuition cost at major Universities runs at 6-10K/yr for an undergraduate degree. If you think that your minion might follow in your footsteps, then Evil Professional School tuition will set you back $40-100K after that.
Many young adults who get university degrees find that they also need a college diploma in a vocation to land a job. Others will go straight to the college route or learn a trade. While cheaper, that still costs 3-6K/yr for training.
Housing and living expenses are another 12-20K/yr on top of tuition. Of course, there is significant variation in tuition and costs of living depending on the school, city, and lifestyle.
The bottom line & more questions to ponder.
In summary, you should plan on a cost of 60-120K for education per kid if you plan on fully covering their education at a school away from home. Perhaps, half that if they are restricted to living at home during school. Much more, if you aspire to cover a professional degree. This raises three questions. How much can you cover? How much should you pay for? Those answers will be different for everyone. The third question is what are the options to pay for it? Hopefully, I can help with that last one.
Registered Education Savings Plan (RESP)
The most important thing to know about an RESP is that it is an account that you open. You can then fill that account with different savings or investments that suit you. This is often confusing to people because they are approached by salespersons selling them RESPs. Those are Group RESPs that you give money to, they then choose the investments and charge management fees.
If you buy into a group RESP, you will lose significant potential returns to the fees and much of the control over how you access the money later too. Learn about the basics of how an RESP works before you sign. Unfortunately, many people are lured into buying into a group RESP by the “bonuses”. Actually, the grants are also available to self-directed RESPs. If you open a self-directed RESP and use a simple low-cost DIY investing strategy, then you avoid the fee drag. You can also strategize to optimize your contributions and withdrawal strategies.
The main grant is the Canadian Education Savings Grant (CESG). It is 20% of contributions, up to $500/yr contributing. The max is $7200/child, but there is more free-money at lower parental income levels. For example, Canada Learning Bonds (CLB) of up to $2K/kid may be available based on a combination of household income and the number of kids. The household income threshold is $50K for 1-3 kids and gradually increases to $134K if you have 16 kids. Sixteen kids!!! Some provinces also have their own additional incentives for RESPs contributions. The grants must ultimately be used for the costs of education. However, that definition is very flexible in practice.
With the grants, it is almost impossible to lose with a self-directed RESP compared to a personal taxable account. Or even compared to a corporate account for professional parents. You contribute with after-tax money. The contributions, plus grants, get compounding tax-sheltered growth. At withdrawal, the contributions come out tax-free and the growth and grants are taxed as income in the student’s (usually) lightly-taxed hands when they take it.
Student Loans & Grants
Federal & Provincial Student Loans & Grants
The Federal Government has a student loan program. It is now an interest-free loan with a long repayment period. Your adult kid must repay it eventually. However, the upfront cash flow is progressively easier to repay over up to 14 years as it is eroded by inflation. There is also a grant component (free money) and opportunities for loan forgiveness.
Similarly, the various provincial governments have student loans and grants that are coordinated with the Federal ones. Most of those are also interest-free. There are opportunities for interest relief and grants too.
Government student loan eligibility and grants are reduced by higher parental income. You may philosophically want your kids to have skin in the game by taking some of the costs on as a loan. However, for high-income parents, there will be less of this available to them. A student line of credit from a bank carries a much higher interest rate. So, high-income parents should pay close attention to maximize planning for their kid’s educational costs. That may be with an RESP, an informal trust to give them money. Or, planning to loan them money from your cash flow or investments.
Student Lines of Credit
Most major banks offer student lines of credit. The amount of credit extended can be substantial and depends on the degree. For undergrad degrees, it is about $20K/yr. In contrast, professional degree students can commonly access several hundred thousand dollars. The interest starts accruing on this debt immediately, even though many allow interest-only payments (or additions to the debt pile) during school.
Banks clamor over professional students to try and not only get their current debt on the books, but to also hopefully retain them for their future banking needs. It is easy to feel special and that this is a reward because you have worked hard to get into a professional program. However, remember that the line of credit is not income that you’ve earned. It is future-after-tax-income that Future-You must earn to pay it back. Medical students can easily become overwhelmed by debt, but it can also be managed in their early career if they tackle it promptly.
Student Bursaries & Scholarships
Most people are aware of scholarships for strong students. Those students are usually very competitive and want not only the money, but the prestige of winning them. Many scholarships are automatically applied for at some institutions and very few are left unclaimed.
Many students are less aware of student bursaries. I found this particularly true when I went to medical school. Around that time, half of the Canadian medical students came from high-income households. I was in the bottom half, coming from a middle-class household, and actually got a bursary in my final year that I found out was unclaimed. I had never even thought to look before then because I figured I was middle class and they were for “poor people”. Student bursaries are usually based upon financial need. Some may be non-academic competitions such as writing an essay. Spoiler alert – a more recent study shows it is even worse now and I would have been in the bottom third.
Student bursaries are also much more ubiquitous than they used to be as philanthropists and institutions have responded to the rising costs of education. You may be surprised by what is available. I am always shocked by the bursaries that go unclaimed because they are not well promoted or people assume they wouldn’t get one. Check at the student affairs or financial aid office of your educational institution.
Parental Cashflow To Offset Costs of Education
If you are likely to still be working or have passive income streams while your kids are in school, then you may supplement their educational costs from that. While it can be difficult to set aside and invest money in advance, leaving it until later does have its risks.
Using the grants and tax-free compounding of an RESP is a gift from the Government. You don’t want to miss out on that. Delaying can also limit the maximum grant if you start late and definitely decreases the impact of compounding. Compound growth is exponential which means that a small delay at the beginning makes a huge difference at the end.
If your kids will be going to school while you are in your fifties, just remember that you will also be hitting an age where health issues can hit unexpectedly. That could impair your ability to work. Hopefully, you will be well along your investing journey to mitigate that risk. If you are, then drawing from your investments could be a possibility. However, you should be very wary of that if it means jeopardizing your own retirement and financial security, if you are not prepared.
Student Jobs & Co-Op Programmes
Pay the Costs of Education & Get Experience
Most students will contribute directly to their educational and living costs by getting a job. Working can have social benefits and skill development opportunities in addition to a financial boost. Of course, this investment of time into a job needs to be weighed against their course load, other opportunities, and how that fits with their ultimate career aspirations. Heavy academic programs leave little time for much else.
Summer Jobs & Businesses
The summer break is usually much longer than secondary school and they are a bit more mature. That allows for more short-term job opportunities. The most coveted jobs either pay really well or look better on a resume or professional school application. Whether hoping to run their own student business for the summer or land a coveted job, they maximize their chances by being proactive. That means networking and planning early in the New Year rather.
Part-time jobs on & off-campus
There are also part-time jobs available throughout the school year. Some may be restricted to students, like a research assistant, or part of a campus service (like at a campus pub or athletic facility). Again, those are coveted jobs and must be proactively sought out. The usual part-time service industry jobs in the community can also help to pay the bills and give an outlet separate from the microcosm of most post-secondary institutions. Even though that may not advance their career, it gives important perspective when surrounded by students in the pressure cooker.
Cooperative Programme Placements
A co-op program is also a great option when available for the desired field of study. They are usually very competitive to get into. For good reason. Not only does a co-op allow for work as part of training, but you also benefit from the school’s connections to hook you up with high-quality jobs. All parties have a vested interest in making it a good experience. Further, those opportunities build skills and relationships for future career opportunities.