Children and Post Secondary: Why We Might Not Pay For All Of It

Knowing the financial mess one can end up in from not having a savings plan for post secondary education first hand, hubby and I opened a RESP for our daughter when she was 5 weeks old. I remember the representative going through the projected education costs for when she’s ready to graduate and was blown away. How can universities justify such an insane inflation?

This week a local news story came out about the rising costs of tuition in Canada. Tuition has increased 5% this year alone. Holy Cow.

At this rate, when baby girl is ready for post secondary, in 18 or so years (should she chose university/undergraduate degree), we’re looking at over $12,000/year. That’s assuming she lives at home and hasn’t factored in books or any other added expenses.

Hubby and I have every intention of continuing regular monthly contributions, plus additional savings when she receives money as gifts and such, but we have no intention of stretching ourselves thin financially for her educational savings. When the time comes and have have more money for saving (vs debt payoff) investing as much money as possible into our own retirement savings is more important than throwing additional money into her RESP.

In a perfect world she gets a part time job when she turns 16 and learns the importance of saving for things that she wants, education included, but despite the finical mess I’m in, I have no problems with student loans and (student) lines of credit. Very rarely in life does the opportunity to borrow at such low interest rates come up, and with proper money management and budgeting skills could be a smart move. I truly believe that if there is some financial responsibility in your education it encourages you to work harder. For this reason if our savings isn’t enough to cover her I’m not going to worry about it. By the time she goes off for school she’s guaranteed to have learned good money management skills-a promise I make for her-and can properly manage a little credit in her name.

I have friends who insist on having enough savings for any and all education their child may pursue, even if they chose something like medicine or dentistry.

Just an FYI this year’s tuition costs for these programs:

Dentistry students paid the highest average undergraduate fees at $16,910. Medical students paid an average of $11,891 and pharmacy students paid $10,297.

Read it on Global News: Global Maritimes | Undergrad tuition up five per cent this year, more than triple inflation

At the 5% inflation we’re looking at almost $41,000/year for dentistry in 18 years…Just sayin’.

Maybe I’m a mean mom, or totally alone on this, but if we’re fortunate enough that our child can get through Medical or Dental school, I’m pretty sure they won’t have much problem paying off the degree, that’s for sure.

For those with children, who are saving for their post secondary education? Who is prepared to pay for 100% of it, regardless of academic pursuits?

 

Comments

  1. We are saving for our children but share your philosophy somewhat. It would be nice to pay for all of it but if we don’t quite get there it’s ok. We save monthly and our children are very young so we are hoping to be able to save more over time!

    • mrsplungedindebt says:

      Maybe we’ll both luck in with genius children who get full rides and all the savings we’ve done can be ours?! :)

      • You can dump it into an RRSP provided you have contribution room. Make sure your RESP has both you AND your husband’s name on it. Then it’s super easy to transfer into RRSPs if the leftovers aren’t required.

        Collapsing the plan is expensive as it requires you pay back the CLG and CLB. (Canada Learning Grand and Canada Learning Bond) AND then on top of that, then you pay 20% withholding tax on what’s left.

        • mrsplungedindebt says:

          Yup it’s all been taken care of! Thanks so much for your comments and if we have any questions I will keep you in mind for sure you seem to know an awful lot about it!

  2. theoutliermodel says:

    Whatever you do, just make sure the expectations are clear. I paid for my tuition with a combination of grants, bursaries, student loans and ‘loans’ from my parents. I have 100% paid off my student loans but still owe over $10,000 to my parents.

    We never set out a repayment schedule and the loan is interest free, so its a challenge to prioritize when we have other interest bearing loans like CFs student loans. It would have been good to formalize the process a bit more if they wanted the money back in a certain amount of time.

    • mrsplungedindebt says:

      Good point, a friend of mine was in a similar situation. Her parents have zero debt so took out a homeowners line of credit which ended up being minimal interest for her to use- she was to take over the monthly minimal payments but they never discussed full repayment. Her brother was set to enter his 2nd yr university and they didn’t tell her until about 7month prior that they intended her to have it paid off so he could have access to it (she had graduated a year previous)…talk about stress! She managed to have it almost paid off but I don’t think their approach was the best.

  3. Don’t forget you have time to take advantage of the CLG. They will give you up to $500 a year for 7 years. It’s a “matching grant” for 20% of your contribution. So to get the $500 you have to put in $2500. But in the investing world, an immediate 20% return is huge.

    Lastly don’t let the bank or an adviser sucker you into crappy mutual funds. Go to a discount brokerage and buy some ETFs. (Exchange Traded Funds) They have way lower fees, which means your holdings grow faster.

    I’d be happy to tell you what I’ve done for my son’s RESP. So far I’ve managed to get nearly a 7.5% return, so if I continue to contribute the $2500 per year until I’ve collected the maximum CLG benefit, and then even stop contributing then just let it work until he goes to school I’ll have enough in there to send him to any school he wants to go to in Canada, for at least one or two degrees.

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