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Students fill a lecture hall at York University. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)
Students fill a lecture hall at York University. (Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail)

Tax Matters

How to finance a post-secondary education Add to ...

Aside from the long-term financial benefits of a post-secondary education, the life experiences acquired along the way will shape the perspectives and potential of tomorrow's leaders.

A friend of mine attended a college in Claremont, Calif., back in 1996. At that time he was part of a class project working to develop an alternative manure-based fuel supply for Guatemalans in a village where firewood was scarce. In order to produce realistic, village-based waste, my friend was instructed to eat only beans, rice and tortillas for a week. Unfortunately, the diet made him constipated and the project was scrapped when it couldn't be finished by the due date.

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This shaped my friend's life by giving him an appreciation for the plight of Guatemalan villagers and a new understanding of the effects of Central American food on the North American human digestive system. As thousands of young people across this country prepare to embark upon their post-secondary education in the next month, seeking the same types of meaningful life experiences, I thought it would be worthwhile talking about how to pay for all this. post-secondary education won't be cheap, and it's going to take a game plan.

The methods

There are five ways to pay for your child's post-secondary education, and the chances are pretty good that it is going to take two or more of these methods. Which methods are most appropriate in your case? Every family is different. Here are the options: Begging, borrowing, stealing, sweating and saving. Let me elaborate.

Begging: I know it sounds unappealing, but what I'm actually referring to is looking for free money wherever it might be available. Specifically, I'm talking about scholarships, awards, bursaries, grants, fellowships and stipends. Is this method of paying for education appropriate for your child? Well, "begging" does assume your child is qualified for certain scholarships or awards, and that your child has the persistence to pursue this free money. If this is going to be part of the strategy, your child needs to start looking for this money at least one year ahead of time. Check out studentawards.com as a place to start.

Borrowing: Borrowing money is one of the most popular methods of paying for an education. If you look at a post-secondary education as an investment that will result in higher income later, borrowing can make sense. But always ask: What level of income can my child expect to earn after graduation? Borrowing assumes your child will have the means to pay off the loan. Remember the rule of tens here: For every $10,000 in student loans, your child should earn about $10,000 annually over a base income of $10,000 in order to repay the loan in 10 years. If, for example, your progeny graduates with $30,000 in loans, he or she ought to earn $30,000 a year, plus a base of $10,000, for a total of $40,000 annually in order to pay off that loan in 10 years.

Stealing: In this case, I'm talking about tapping into your other resources to finance your child's education. That is, making withdrawals from your Registered Retirement Savings Plan (RRSP), for example, or selling the cottage. This method assumes you have other resources to draw on. Stealing should be your last resort if you're thinking of using your retirement savings. In fact, saving for retirement should be a higher priority for you than paying for your child's education. Still, "stealing" from yourself is an option.

Sweating: This method involves your child working to pay for an education. Holding down a part-time job during the school year, and working full time in the summer makes good sense for a number of reasons, not the least being that it can provide some funds to cover education costs. Keep in mind, a student working more than 15 hours or so a week during the school year may find it a challenge to keep up in school. This method assumes your child will have the time and skill to work at an appropriate job.

Saving: This is the surest way to pay for an education, but it assumes you have sufficient time to save, and the income to set aside money regularly. A registered education savings plan makes good sense since contributions can be supplemented with government grants as well. But there are other strategies to consider. I'll share more on this topic next week.

Tim Cestnick is president and CEO of WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.



Investor Education: RESPs

  • Related contentHow does the Canada Learning Bond work?
  • Chapter 1 : What affects how much my Registered Education Savings Plan pays?
  • Chapter 2 : How can the government help me save for a child's education?
  • Chapter 3 : What will it cost to have an RESP?
  • Chapter 4 : What happens to the money in my RESP if plans change?
  • Chapter 5 : What happens if I close out my RESP?
  • Chapter 6 : What do I need to know about the risks of an RESP?


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