For parents, one important challenge is trying to visualize the future and plan for their children’s possible post-secondary education costs. This is normally hard to determine until your children are in high school and close to making their career decision. To wait until they are older, however, might mean foregoing several years of savings potential in preparing for the education costs. Those costs, although they may be years down the road, can be daunting. What options are available to parents and students in planning for education costs?

The easiest situation is if your child opts to attend a local educational institution. Expenses, in this case, will be mostly tuition fees, books and student fees. If they decide to seek educational opportunities away from home, then the cost of living will add substantially to the expenditure. Statistics Canada has calculated that the average 2012-2013 tuition cost for an undergraduate degree is approximately $5,300. Books and student fees are extra. The cost of living away from home can add an additional $8,000 plus per year. Costs will vary by region of the province and country. The normal undergraduate degree requires four years of study. If your children are young, then the quoted numbers, due to inflation and steadily increasing education costs, will be much higher in the future. It is easy to see that post-secondary education will cost many thousands of dollars. How does one prepare for these costs? This is especially important when a new family never seems to have enough money to go around.

The first step is to start early. The sooner you start saving, the more you will have down the road. Start small if you have to and increase the savings over time. An excellent way to save is through a Registered Education Savings Plan (RESP). An RESP is a federal government savings plan that allows education savings to grow tax-free. This is also a great way for the grandparents to help because they can open an RESP in their grandchild’s name. With the RESP, you can take advantage of the Canadian Education Savings Grant (CESG). The federal government will annually add 20 per cent of your contribution up to pre-defined limits into the RESP. There are specific rules and conditions for both the RESP and the CESG. To learn more visit web link.

Other avenues of covering educational costs are scholarships, bursaries and grants. The best part of these options is that they are money that does not have to be repaid. Both the federal and provincial governments offer grants and bursaries. Scholarships, available from many sources, are awarded based on various criteria. Some examples are sports and academic achievement. A number of employers, unions and other private agencies also offer scholarships. There are thousands of scholarships and cash grants available. Often overlooked, they can offer important cash contributions when the time comes to pay for education. To learn more, visit your child’s school counselling team or web link.

If the previous options do not generate enough funding, then the Canada Student Loan program might be a possibility. In September 2012, British Columbia joined other provinces in adopting the Integrated Student Loan process. This replaces the previous separate federal and provincial loan application procedure. Now there is one-stop shopping to obtain a loan, with the ability to check loan status and balances. The first time the student applies, they will complete a Master Student Financial Assistance Agreement. If the student opts to study outside of B.C., five other provinces follow the same process: Nova Scotia, Ontario, Saskatchewan, Newfoundland and Labrador and Manitoba. The remaining provinces still follow the old process of separate federal and provincial loans. The canlearn.ca website has everything you need to know about the student loan process.
If funding is still a problem, several banks offer another alternative, the student line of credit. The basic mechanics of the line of credit process is similar with all participating banks. There are differences between them in some of the terms such as interest rates, repayment options and interest payment. There are pros and cons to this funding option. One major difference between a student line of credit and a government student loan is the interest on a student line of credit is not tax-deductible while it is on a student loan. A co-signer might also be required, which might affect their credit. If there are concerns about the student’s ability to stick to a budget and use the line of credit for only educational purposes, then this option could be a problem. You need to do your homework before going this route and ensure you have a good understanding of what you are taking on.

Sometimes parents will fund the education themselves by using a home equity loan, line of credit or establishing a savings vehicle such as a mutual fund of a Tax Free Savings Account (TFSA). These options can be complex and the tax implications must be understood. Before selecting this option, talk to your financial institution or a Certified Financial Planner.

Finally, students can work and earn their own money. This could be a combination of part-time work during the school year and full-time work in the summer. It will lessen the amount to be borrowed and later paid back with interest. As an added bonus, the student gains valuable job experience that could lead to employment at graduation. The experience will also look good on job resumes.

As you look ahead and consider your children’s education there are two main points to consider. The key: start saving early with whatever you can comfortably handle. The more time the money has to grow, the more you will have when you need it. The other point is there are many options for funding education. Just like your child in school, you also have to do your homework.

Keith Guinchard is a former Financial Planner and Non-Profit Debt Counsellor who maintains a keen interest in financial issues and their effect on families. To contact: keith@keithguinchard.com.