Going to university is a major step for any Canadian looking to expand their career options, secure a future job in a lucrative field, and build their educational history to the point that most of what we currently view as middle-to-upper-class goals can be achieved. Millions of Canadian students work tirelessly to accomplish this goal each year. And yet, the cost of education has increased markedly over time, as has the associated level of student debt that prospective graduates take on to pay for their post-secondary education. How can you make the most effective financial provisions for this critical educational and career stepping-stone?
The first thing to do is to understand how trends have influenced the cost of education in Canada. Unfortunately, it’s been consistently more expensive to attend Canadian universities each year going back more than a decade. According to Statistics Canada, the average undergraduate paid $6,373 for the 2016-17 year, which is close to a three per cent increase from 2015-16. Average fees, in current dollars, have increased to their current level from an average of $1,464 in 1990-91. In fact, Canadian Scholarship Trust consultants estimate that by 2035, a four-year degree could cost as much as $157,000! Additionally, these values don’t account for non-tuition costs like food, course materials, and transit or vehicle expenses.
Rising costs will unfortunately leave many students with increasing amounts of debt after they leave school. Controlling this debt is a must if we are to avoid deepening the generationally high household debt levels of Canadians – a figure which climbed to 168.7% of household income as of this past September.
So, what’s a student – or a parent planning to save for their child’s education – to do?
Many Canadian parents will choose to use an RESP – or Registered Education Savings Plan – as a vehicle for funding their child’s future education. Savings and investments in these plans grow tax-free until they are withdrawn by the beneficiary (the student) as Educational Assistance Payments. Through the Canada Education Savings Grant, the federal government provides a 20-per-cent grant on RESP contributions of up to $2,500 a year.
You can use a calculator, like this one provided by the Ontario Securities Commission, to estimate the annual contributions you should budget toward an RESP. They’re not just for parents, either – any prospective student can open an RESP and start contributing to it, making these savings vehicles useful for adults seeking further education as well.
There are education savings methods beyond RESPs as well. Some families will use their TFSA contributions to this end, while others will set up trusts or separate cash accounts. Each method is worth discussing with a qualified financial advisor. By preparing adequately, we can keep future generations from accruing even more student debt than they already have, and keep the ecucational and financial priorities of all Canadian students aimed in the right direction.