Plan Now - Go to School Later
When it comes to planning for your
child's post-secondary education, there is good news and bad news.
The good news is there are many things you can do to prepare for your child to
attend college or university.
"The bad news is that there is every likelihood that tuitions are going to
increase so you need to factor in the need for more than you bargained for,"
says Chartered Accountant, Dr. Rick Robertson, a professor at the Richard Ivey
School of Business at the University of Western Ontario in London.
So what can you do?
Tim Cestnick, FCA, Principal, The WaterStreet Group Inc., in Burlington and
author of the book Winning The Education Savings Game, explains there are
essentially five ways of paying for post-secondary education: begging,
borrowing, "stealing", sweating and saving.
"Every family needs a plan that outlines the education funding that will come
from each of these five sources. Of course, I recommend the majority come from
savings – and the sooner you start, the better. It's best to begin at least 10
years ahead of the time when the money is needed," says Cestnick.
Robertson agrees. "Before you know it, your child will be 17 and on the verge of
taking this next big step in their education. I strongly advocate taking
advantage of Registered Education Savings Plans (RESP) and saving money in a
tax-sheltered environment. The government contributes 20 per cent annually, for
each dollar contributed each year. The maximum is $400 based on $2,000 of
contributions. Small regular monthly contributions make it a relatively easy
process."
Robertson also suggests that you encourage Grandma, Grandpa and other relatives
to contribute to an RESP. "It's a very nice legacy to leave to your
grandchildren – and most grandparents can strongly relate to the importance of
education." One caution though: if multiple people set up an RESP for the same
beneficiary they must share the contribution limit of $4,000 in any year.
"Begging is an approach that entails approaching governments, schools or
corporations for free money through grants or scholarships," says Cestnick.
It's important to check out the terms and availability of scholarships, awards,
bursaries, and grants annually so you can apply well in advance of the need. You
can view a current list at www.studentawards.com.
"Borrowing is as straightforward as it sounds: apply for loans from the federal
and provincial governments through your high school guidance department,"
continues Cestnick. "I do think that limits for borrowing are a good idea and
that you should keep it under control."
The next way, 'stealing', actually means dipping into other assets – RRSPs,
re-mortgaging the family home, or liquidating assets like the cottage. Both
experts agree that this isn't the best option as you may leave yourself short in
retirement.
'Sweating' involves your child working part-time during the school year and
full-time during the summer.
"In decades past, students could take a summer job or a part-time job throughout
the year to fund much of their tuition. Not any more. With rising tuition costs,
it is unrealistic to think students alone can fund the majority of it, however
they can and should contribute to their expenses," says Robertson. "I do think
it's important to encourage children to get involved and take an interest in
their own education and to realize the value of participating in the funding."
There are other considerations as well. "Think about the location of the school
your child could attend. There is a huge reduction in costs if the child can
live at home while attending school. You do need, however, to learn where the
best courses are to fit your child's career objectives. Weigh the pros and the
cons of the types of courses near your home as well as the valuable learning
experience of living elsewhere."
Also, check out the difference in tuitions. A report in The Toronto Star,
February 20, 2006, quoted Pam Frache of the Canadian Federation of Students'
Ontario branch as saying that McGill and the University of Toronto are tied for
top medical universities in Canada but tuition at the U of T medical school is
more than $16,000 a year while it is only $3,500 at McGill.
"Tuition, books, accommodation, food, spending money, travel – they all add up.
If financing is the prime factor, then attending a university close by and
living at home clearly cuts costs," advises Robertson.
For
more information contact a Chartered Accountant.
Brought to you by the Institute of Chartered Accountants of Ontario.