This blog post is a guest post from the good folks at Proliteracy.ca.
We’re delighted to be writing a guest blog post for Jordann to discuss what we think is one of the most important issues for new parents and students today: how to pay for post-secondary education. For context, Proliteracy.ca offers a free online tool that uses open data to help Canadians plan for exactly that!
Post-secondary education is increasingly becoming an expected part of Canadian life. In fact, Canada has the highest percentage among any OECD country of adults 25-64 who have obtained a college or university education, 53%. That number goes up to around 64.1% once we add in trades. According to Human Resources and Skills Development Canada about 70% of new jobs will require some form of post-secondary education.
But post-secondary is becoming increasingly expensive. Average tuition has nearly tripled since the 1990-1991 academic year, from about $1,464 to $6,191 for the 2015-2016 academic year. And as most of you who’ve gone through it know, tuition isn’t the whole picture. For example, using Proliteracy.ca we can see that a student attending a Toronto university in 2030 for business, living away from home with no government support could expect to pay a total of about $183,000, only about 50% of which is for tuition. That’s a pretty big number to pay out of pocket.
While we don’t have a way to lower the price of college or university, we do want to help make it easier for students and parents to plan their finances early and minimize their debt. To get you started, here are 3 quick tips to help you save for and pay for post-secondary.
1) Open a Registered Education Savings Program (RESP)
When it comes to paying for post-secondary education, RESPs are hard to pass up.
Firstly, starting an RESP can provide access to a whole bunch of free money in the form of the Canada Learning Bond (CLB) and Canada Education Savings Grant (CESG). The CLB offers $500 up front when you start an RESP and $100 every year thereafter while the CESG offers 20% contribution matching each year up to $500 each year. These benefits alone can add up to $9,200 plus any interest that accrues. And interest shouldn’t be discounted – with an annual contribution of $2500 (to maximize the benefit of the programs) and an average return of 6% over 15 years that’s another $6,000. Even if you don’t think you’ll be saving enough for a regular investment account to be worth it, an RESP is.
The second major benefit of RESPs is that, like an RRSP, they accrue interest tax-free until you take the funds out. Even better, when they are taxed, they’re taxed at the income level of the recipient. We don’t know about you, but when we were students we weren’t making much money!
Of course, one of the challenges with all the government benefits available with RESPs is figuring out what you’re actually eligible for. Proliteracy.ca is aiming to make this easier by providing targeted recommendations based on the information you provide.
2) Search for scholarships
No matter how far off college or university may seem for you or your kids, it’s worth it to start looking at grants and scholarships. Despite the common belief that scholarships are only for students with great grades, there are plenty of others available. Whether it’s community service, financial hardship, the arts, sports, or writing an essay, there are scholarships for almost everyone.
There are a number of free scholarship databases, including the growing selection aggregated through Proliteracy.ca. No matter how early on you are in the planning process, taking some time to comb through scholarships can help you pick out which ones might be worth applying for down the road.
And keep in mind, by applying for scholarships you may actually be doing the providers a favor. With over $5 million in scholarships going unused each year, many scholarship providers aren’t getting the value they were looking for when they decided to offer the scholarship in the first place.
3) Research and apply for government loans
Remember when we said we wanted to minimize student debt? Well unfortunately for most Canadians that still means carefully assessing debt options. The average new graduate is now carrying $28,000 in student debt, and according to a survey by CIBC 51% of Canadian students will need to borrow money to pay for their education moving forward.
Fortunately, some forms of debt are better than others. For example, the Canada Student Loan Program (CSLP), the federal government’s student loan plan, automatically considers those that qualify for a range of Canada Student Grants, which can provide anywhere from $100 to $250 per month of study, per grant. And as Jordann mentioned in her recent post on the subject, government loans, federal and provincial, also typically have Repayment Assistance Programs (RAPs) designed to give students a chance to breathe if they can’t make their minimum monthly payments.
While the CSLP rate is set at prime + 2.5% on a variable rate and prime +5% on a fixed rate, provincial rates vary significantly – anywhere from 0% in Manitoba to prime + 2.5% in British Columbia (check here for a full list). And since the Canada Student Loan Program only provides funding up to 60% of the assessed need, any extra funding will need to come from one of these provincial programs or the banks.
So why are these loans better than those from the banks? Here’s a handy chart to help you understand some of the key differences:
There you have it, three of the most important areas to review for post-secondary financing all in one post! If you’d like to know more about planning for post-secondary education, feel free to check out Proliteracy.ca or drop us a line at firstname.lastname@example.org and we can help point you in the right direction. And of course, this is a free tool to help you, so if there’s anything we can add or modify to improve your experience let us know!