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As the kids return to high school, it’s time to start planning for their postsecondary learning (Photos.com)
As the kids return to high school, it’s time to start planning for their postsecondary learning (Photos.com)

TAX MATTERS

How to beg, borrow or steal an education Add to ...

I’ve been trying to impress upon my children the importance of a postsecondary education. I have to thank a woman by the name of Diane for scaring my kids into believing that education is the ticket to avoiding a life of unpleasantries that she suffered through. Diane, who visited us last weekend, told her story of skipping a postsecondary education and joining a biker gang instead. She was caught up in a life of crime and eventually traded her most valued possessions for a pair of chaps.

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Now that my kids are convinced that a postsecondary education makes sense, I’ll have to deal with the reality of paying for that education. Maybe you’re in the same boat. Last week, I spoke about borrowing to pay for an education and provided some tips around student debt. Today, I want to revisit the five ways to pay for an education. In short, these are: Begging, borrowing, stealing, sweating and saving. Let me explain.

Begging

I’m not talking about standing on a street corner with cap in hand. I’m simply talking about seeking out “free money” in the form of scholarships, bursaries, awards, grants, fellowships and stipends. It’s a good idea to start looking for free money well in advance – even a year in advance – of when your child is planning to attend school. Where should you start? Consider what your employer might offer in the way of assistance, and consider visiting scholarshipscanada.com and studentawards.com. The “begging” approach does assume that your child is qualified for certain scholarships or awards, and that he or she has the persistence to pursue free money.

Borrowing

Borrowing money for education can make sense, but do it prudently. The Canadian Association of Insolvency and Restructuring Professionals had a panel discussion on student loan defaults recently. According to the association, $3-billion in student loans are handed out to 400,000 postsecondary students in Canada each year, and the federal government anticipates 87 per cent of students will repay their loans. For those who don’t, students might expect a future that includes the Canada Revenue Agency sending collection letters, recouping income tax refunds, seizing assets or having wages garnisheed. Borrowing as a strategy does assume your child can repay the debt, so follow the rules of smart borrowing that I spoke about last week.

Stealing

Although stealing may sound illegal, I’m talking about parents stealing from their other assets to pay for a child’s education. A parent might, for example, make withdrawals from a registered retirement savings plan or sell the cottage to pay for education. This strategy does, of course, assume you have other assets to draw on. “Stealing” to pay for an education should be a last-resort strategy, particularly if you’re thinking of tapping into your retirement savings. I’ve often said that your retirement should come before your child’s education as a financial priority. After all, there are other ways to pay for an education.

Sweating

This strategy involves your child holding down a part-time job while attending school, and working in the summers to earn money to pay for education. As a general guideline, a student who works more than 15 hours each week during the school year will have a tough time also managing a full-time course load. This strategy does assume that your child will have the time and skill to work at an appropriate job to earn income.

Saving

Saving is really the surest way to pay for an education – but it does assume you’ll have the required discipline to regularly set aside money . A registered education savings plan (RESP) is a good place to start. The government offers up Canada Education Savings Grants (CESGs) when contributions are made to an RESP. The CESG equals 20 per cent of contributions to an RESP up to a maximum of $500 for each year ($7,200 in a lifetime for each student). If you can set aside $2,500 per year for a student from the time she is young until she is about to go to postsecondary school, you’ll maximize the CESGs and will go a long way to paying for that education.

The plan

Now it’s time to create an education funding action plan. Take the time to contemplate the likely costs of education, and how much of those costs will be met through each of these methods. You’ll likely use more than one method to help meet the costs of education.

Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books. tcestnick@waterstreet.ca

 

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