Why You Should Save For Your Child’s Education – and the Earlier the Better!

Parents dream of raising their children to be healthy, happy, and productive members of society. We want our children’s futures to be bright and full of possibility. If you’re in the season of life with babies or very young children, sending them off to college or university can seem a million miles away. After all, you’re focused on teaching them to walk and talk right now. Speak with anyone raising older children though, and they will tell you that the years go by in a flash! Currently, tuition costs for full-time university programs cost approximately $7,900 per year in Ontario, and that figure is surely to continue rising. For many young people, student loans are their only hope for going to college or university.

How do Canada student loans work?

The Government of Canada has been offering loans and grants to support students in post-secondary education since 1939, with the current version of the Canada Student Loan Program beginning in 1964. At that time, they issued assistance to just over 42,000 students. As of 2022, over 1.9 million Canadians have student loans.

The Ontario Student Assistance Program (OSAP) administers both the federal grants and loans, as well as additional provincial supports. OSAP helps to pay for tuition, books, equipment, school fees, living expenses (for full-time students) and child care if applicable. University, college and apprenticeship programs are all eligible.

On April 1, 2023, the federal Minister of Employment, Workforce Development and Disability Inclusion announced the permanent elimination of interest for Canada Student Loans. However, students continue to be responsible for any interest that may have accrued on their loan before this date. There is a 6-month grace period following graduation, before students must begin repaying their student loans. Students in Ontario are charged interest (prime + 1%) on the Ontario portion of their loan from the day they graduate.

What does this mean for the average Ontario post-secondary student?

Not everyone qualifies for OSAP, especially those with adequate financial resources, such as bursaries, scholarships or significant household income. However, according to Statistics Canada, as of 2020, 59% of young people attending university in Ontario had student loans, with an average debt owed upon graduation of $30,800. That debt increased to $41,100 for those graduating with a Master’s Degree and $38,600 for a Doctorate level degree. For an Ontario student who competes a 4-year program while living away from home, student debt in excess of $50,000 is not uncommon.

That much debt takes a long time to pay back. The Canadian Federation of Students estimates that the average Canadian takes 10 years to pay off their student debt. That’s a decade where the graduate won’t be saving or investing those dollars, which can dramatically affect their ability to purchase a home or save for their own retirement. Therefore, it is becoming more evident, is that helping your children graduate from post-secondary education with little or no debt, may be the greatest gift you can give them.

What can YOU do now to lessen the debt burden down the road?

Start a Registered Education Savings Plan (RESP) for your child at the first opportunity. The savings in your child’s RESP grows tax-free and your child will receive the basic Canada Education Savings Grant (CESG) from the Government of Canada.

The CESG is a maximum of 20% of the first $2,500 invested into the RESP each year, or $500. In other words, if you deposit $ 2,500, the government will deposit an additional $500. If there is unused grant room from a previous year, the grant can increase to up to $1,000. Over the life of the RESP, your child can receive up to $7,200 in grants – that’s like a free year of tuition! Furthermore, they can graduate will little or no debt.

For example,

1. If you save $50 per week, $100 every second week, or $210 per month in your child’s RESP, that will add up to $2,500 per year.
2. Your child will receive the $500 Canada Education Savings Grant.
3. If you do this for 18 years, you will have at least $45,000 saved, not including interest.
4. Your child will receive the entire $7,200 in grant money that they are eligible for.

The Canada Learning Bond also offers an additional incentive of up to $2,000 to help low-income families start saving early for their child’s education after high-school. Note that the capital gains and earnings from a RESP are taxable when it’s time to withdraw the money. This portion is taxable to the student, however, it is likely the student will be in a very low tax bracket at the time of withdrawal.

What if I haven’t saved enough for my child’s post-secondary education?

Life happens, and it’s not always possible for parents to save the maximum amount in a RESP. There are still things you can do to lighten the burden down the road.

• Save whatever you can manage into a RESP – every little bit of grant money and tax-free growth helps.
• Apply for OSAP even if your child has no intention of taking the loan. When your child applies, they are automatically considered for both grants and loans. If they don’t want to take a loan, they can decline it after their application is approved. Funds in a RESP don’t affect how much OSAP your child will receive.
• If the choice comes down to an OSAP loan or no post-secondary education, then take the loan. If your child has the ability, they should pursue some sort of post-secondary education. A study completed in 2019 for Indeed, a job search website, young graduates tend to fare much better in the long run than those who enter the workforce straight out of high-school. Employment rates are higher among those with post-secondary degrees, diplomas, or apprenticeships. Earnings increase steadily over time and, on average, outpace the salaries of those without post-secondary education.

Whatever the age of your children, it’s never too late to get started on saving for their education. Kindred can help you navigate all of the investment options and find the path that’s best for you and your child. Book an appointment to speak with a member of our Wealth and Investment Team today!