The financial challenges faced by today's post-secondary students are greater than ever. A report by the Canada Millennium Scholarship Foundation found that undergraduates who graduated with debt in 2006 from Atlantic Canada owed an average of $29,747; British Columbia undergraduates owed an average of $26,675; and the national average was $24,047.
But with studies indicating that university graduates earn an average of 60 per cent more in their lifetime than the average high school graduate, an investment in post-secondary education can still prove enormously profitable.
For families with the ability to save, the RESP is an ideal way to help students succeed in post-secondary education while minimizing the financial burden of debt after graduation.
"If you choose to use an RESP, the government also provides grant money, 20 per cent of what is contributed up to a maximum of $500 per year," says Lee Anne Davies, head of retirement strategies for RBC, noting that the lifetime maximum grant is $7,200 per student. "The money is sheltered from taxes, so you get the maximum compounded growth. And it's not taxed until it's withdrawn by the student."
While there are many ways to save for education, "My advice is to contribute first to RESP, to the amount required to maximize the Canada Education Savings Grant," says Murray Baker, author of the bestselling Debt-Free Graduate.
After that point, he says, parents may wish to earmark a portion of their Tax-Free Savings Account (TFSA) contributions for education. (Unlike the RESP, which is taxable in the student's hands on withdrawal and can only be used for post-secondary education, TFSA withdrawals are non-taxable and can be used for any purpose.) A TFSA can't be opened in a student's name until they reach age 18, but for parents with the means to do so, a contribution to a TFSA in the student's name in the years after they turn 18 may be an ideal way of helping fund post-graduate studies.
Many Canadian families are juggling competing financial priorities, says Ms. Davies, and can benefit from financial advice. "We step back and talk to our clients about their goals, not just for education but for their family," says Ms. Davies. "Once we've got that holistic perspective, we can start to talk about which options might work best for them."
Ms. Davies notes there are all kinds of ways to save, including trust and high-interest savings accounts. "The TFSA is also a great way to shelter your savings from tax. But the thing you want to bear in mind is that the RESP gives you additional money because of the government grant. It also sets that goal in motion and keeps you focused."
An RESP also provides an opportunity for other family members to contribute, she says. "We're seeing so many people interested in seeing children further their education. It's not just the parents anymore - we see aunts, uncles, grandparents and friends contributing."
For families with more than one child, a family plan can provide greater flexibility. "If one of the children in the plan goes to a less expensive post-secondary institution or decides not to go at all, the other children in the plan can still use that money," says Ms. Davies, noting that target date funds, such as those offered by RBC, can help parents ensure an appropriate investment mix within the RESP depending on the age of the child or children.
Whatever you do, says Mr. Baker, start as soon as you can. "The earlier you begin, the better off you'll be. I recommend families sit down together early to create a comprehensive plan to help students attain their educational goals. It may include funds from RESPs or other investments, scholarships and bursaries and, where necessary, student loans."
Many scholarships have qualification criteria that require advance planning, he says. "Scholarship committees look at a variety of factors. There may be a grade requirement, but they may also look at community involvement, leadership skills and extracurricular activities. If you're making plans in the first year of high school, you have time to make yourself a much stronger candidate when you apply."
One of the advantages of education savings, says Ms. Davies, is that it provides an opportunity to establish a dialogue with children about post-secondary education. "I talk to my children about their RESP and the idea that, from our family's perspective, their continued education is very important. My commitment to them is to continue putting money aside for that purpose. Talking about their RESPs helps with financial literacy, which we know is a big challenge for a lot of families. It's a great way to talk to your children about how you save money and put it aside for a certain goal, and how money compounds and grows."
Seek and tap into all available support
Want to access scholarships and bursaries and minimize education debt? Murray Baker, author of the bestselling Debt-Free Graduate, has some good advice.
"Search engines are good (see below), but it's also important to consider all affiliations and clubs the parents and students are involved with," he says. "Trade unions, religious affiliations, service clubs and sports clubs, for example, sometimes have scholarship money available to members and their families."
While the amount of the scholarship offered by these organizations may not be large, he says, the competition is usually less as well. "Small organizations may have smaller amounts that they probably don't have the budget to advertise."
He also recommends the following free websites:
- studentawards.com: matches "students with scholarships, grants and cash awards" ;
- scholarshipscanada.com: offers a searchable database of "scholarships, grants and bursaries along with information about student loans, applications and budget planning";
- debtfreegrad.com provides a variety of resources for college and university students.
For more information on RESPs and the Canada Education Savings Grant, visit hrsdc.gc.ca/eng/learning/education_savings.