Tuition fees: The true cost of education (Part 1)

It’s back to school season again and we can dream about our children’s future, which often includes a post-secondary education. But, how do we pay for it? An RESP could be the answer.

When the Registered Education Savings Program (RESP) was first introduced in 1972, I was just out of elementary school. I worked for nearly a year between Quebec’s CEGEP program and my first year at university, since I couldn’t count on financial help from my parents. I was lucky enough to move up the scholarship recipient list at McGill University from two small scholarships to what turned out to be a full scholarship covering most of my undergraduate degree costs. Together with summer job earnings, I was able to graduate debt-free. I started working full-time one week after graduation. After going back to school eight years later to get my accounting designation, I came to Toronto for three days of job hunting. I had 14 interviews and seven job offers.

What a different world my teenage son and all of our children live in today. I’m not sure I would trade places with them. University tuition costs are climbing faster than inflation, and although university graduates still out-earn those without post-secondary education, too many graduates find themselves underemployed or in precarious contract employment without stability and benefits. Despite this often difficult employment picture, a post-secondary degree is still the goal of many parents and students. Looking forward, the literacy and numeracy skills that will be required for most new jobs (estimated at up to 75 per cent of new jobs created in Ontario today, for instance) will require a post-secondary education.

National average undergraduate tuition fees are expected to be close to $7,500 per year for the 2016-2017 academic year. Add in other costs and residence away from home. and the cost of a four-year undergraduate degree can hit $60-80,000. Here is a link to just one post-secondary cost calculator. You can also find one on most of the big banks’ websites. 

Average student debt on graduation from university is estimated at close to $37,000, including all forms of student loans.

An RESP can go a long way to helping your children achieve their education goals without the burden of significant debt. All you need to start an RESP for your child or children is a Social Insurance Number (SIN) for both you and your child. There are a number of different types of plans. The federal government assists parents by matching 20 per cent of their contributions to an RESP to a maximum of $500 per year. This government contribution is called the Canada Education Savings Grant (CESG). Several provinces also have their own plans, and the government contribution can be higher if your income is low. A $2,500 annual contribution to an RESP will maximize the available CESG. Sacrifice one latte a day and you are close to halfway there. Here is an article that explains in plain language the key features of the RESP, and a link to a Canada Revenue Agency publication that goes into more detail.

I think most would agree that investing in our children’s future is a worthy endeavour. And, in this age of rock-bottom interest rates and stock market volatility, where else can you get a guaranteed 20 per cent return on your investment?

In the second part of this post, I will look at how the tax system can help alleviate some of the sting of the cost of post-secondary education.

Keep the conversation going

How will your children’s post-secondary education costs be paid for?  Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Ann Hebert, CPA, CA


Ann is a practicing professional accountant in Toronto. She has worked with Invesco Canada Ltd. in a number of positions since June 1994, and has been assistant vice-president of Corporate Taxation since 2002. Ann is passionate about financial literacy and contributing to Canadians’ financial knowledge.

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