Financing an education
Financing an education in Canada can be assisted by a number of Canadian government programs that provide tax assistance and incentives for those pursuing post-secondary education. The main program is the Registered Education Savings Plan (RESP), a special type of registered account designed to save for post-secondary education. Contributions to RESPs makes the future student automatically eligible to receive the Canada Education Savings Grant (CESG) and some provincial incentives.
Modest-income families can also get the Canada Learning Bond (CLB), even without making a RESP contribution.
The Lifelong Learning Plan (LLP) is a way to get money from a Registered Retirement Savings Plan (RRSP) to pay for training or education. This article provides an overview of these programs, after reviewing the costs of post-secondary education. These costs are substantial, so planning ahead is typically needed.
Costs of post-secondary education
Tuition for undergraduate programs for Canadian full-time students was, on average, $6,834 in 2022/2023.[1] Then one must add compulsory fees of $1,039 on average.[1] Some programs are much more expensive, and costs vary by province.
To this one might add $1000 or more for books[2][3] and perhaps living costs of $10k-12k or more[2][4][5], for a total of perhaps $20k per year, with a four year undergraduate degree costing on the order of $80k (or more). At 3% inflation, this means well over $100k eighteen years from today when today's newborn child begins university.
The Canadian Centre for Policy Alternatives reports that "Between 1990 and 2011 the average increase in tuition fees and ancillary fees was 6.2% (ranging from 3.4% in Newfoundland and Labrador to 7.5% in Alberta) while inflation over roughly the same period was 2.1%."[6] Another way to look at the tuition increases is that in 1990, it took 293 hours of work at the minimum wage ($5 an hour) to pay the average yearly university tuition, compared to 505 hours at the minimum wage ($13 an hour) in 2018.[5]
RESP
An RESP is an effective way of financing post secondary education for children. RESPs are registered by the Government of Canada to allow savings for education to grow tax-free until the person named in the RESP enrolls in post-secondary education. There is a current lifetime contribution limit of $50,000 for each beneficiary.
Funds can be withdrawn to pay for post-secondary education. Accumulated income and government grants are then taxed in the hands of the beneficiary. As most children have low incomes, withdrawals are likely to be taxed lightly if at all. Any contributed principal can be withdrawn tax-free by the original contributor.
Canada Education Savings Grant
Employment and Social Development Canada provides an incentive for parents, family and friends to save for a child's post-secondary education by paying a grant based on the amount contributed to an RESP for the child. The CESG money will be deposited directly into the child's RESP.[7]
- The federal government will deposit a Canada Education Savings Grant[7] when contributions are made for children up to age 17.
- Only the first $2,500 of a contribution will be matched in any one year, typically at 20% with some increment for lower income families.
- The lifetime maximum CESG is $7,200.
- There are provisions for accumulation of unused CESG room to be carried forward.
To get the lifetime maximum CESG, you have to contribute $36k to a RESP. You could for example contribute $2500 per year for 14 years, and $1000 for one final year.[8] Or if your budget is tight, perhaps contribute $2117.64 a year for 17 years.
Canada Learning Bond
The Canada Learning Bond (CLB) is a grant offered by the Government of Canada to help parents, friends, and family members save early for the post-secondary education of children in modest-income families.
Beyond the CESG, Employment and Social Development Canada (ESDC) provides an additional incentive of up to $2,000 to help modest‑income families start saving early for their child's education after high school (post‑secondary education).
The Canada Learning Bond money will be deposited directly into the child's RESP.
Lifelong Learning Plan
The Lifelong Learning Plan (LLP) allows you to withdraw money from your RRSP to pay for training or education. This money could also help pay for training or education for your spouse or common-law partner.
Under this plan, you can withdraw up to $10,000 in a calendar year from your RRSPs. Your spouse or common-law partner can also withdraw up to $10,000 from his/her RRSPs per calendar year, for a $20,000 maximum withdrawal in a calendar year of both personal and spousal withdrawals.
See also
References
- ^ a b Statistics Canada, Tuition fees for degree programs 2022/2023, viewed February 23, 2023.
- ^ a b University of Toronto, Living costs, viewed December 7, 2019.
- ^ McGill University, Yearly costs, viewed December 7, 2019.
- ^ TopUniversities.com, How Much Does it Cost to Study in Canada?, viewed December 7, 2019
- ^ a b Gerard Walsh, RBC, The cost of credentials, June 2018, viewed December 7, 2019
- ^ David Macdonald and Erika Shaker, Eduflation and High Cost Learning.pdf, Canadian Centre for Policy Alternatives, September 11, 2012.
- ^ a b Canada Revenue Agency, Canada Education Savings Grant (CESG), viewed November 2, 2013
- ^ Sandi Martin, RESPs For Any Situation(subscription required), Canadian MoneySaver, September 2021 issue
External links
- Financial Consumer Agency of Canada, Budget for Student Life