It’s back to school time. If you’re looking to fund your own or your child’s education but haven’t regularly saved for several years towards those expenses, there are a number of options for paying for expensive tuition, housing and textbook costs. In today’s post, I’ll outline the 5 ways you can pay for education costs or put away short-term savings for it. You can find details about these sources in the video above or the post below.
The first option is to fund tuition and other education costs from the parent or student’s regular income each year. Education costs are hefty, so something will have to give if you are funding those through regular annual income. That can be discretionary spending, retirement savings, or your time to pick up extra work in order to earn more income. If you’re a recent high school grad saving for your own schooling, summer or part-time income may not be sufficient to cover all the costs. Fortunately, many university and college programs offer co-op opportunities where students can earn an income while gaining work experience related to your education.
The second option for funding is scholarships and bursaries. Scholarships and bursaries can come from many different sources, and sites like Yconic and Scholarships Canada help to consolidate the scholarships available. Many schools also offer their own scholarships and bursaries. Some are automatically awarded while others require an application each year. Many employers will also offer scholarships to their employees and/or their children.
Student loans are the third option for school funding. Government loans are the first place to start since they’ll calculate if you’re eligible for any grants you don’t have to pay back, depending on the parents’ and students’ situation. Interest doesn’t start on government loans until the student leaves their studies and repayment assistance is available if the loan payments are unmanageable due to low income or disability. Banks also offer student loans if government loans aren’t sufficient or you/your parents have or earn too much money. Bank loans often require a co-signer who is ultimately responsible for covering the loan if you cannot. Bank loans typically have higher interest rates than government loans, especially when incorporating the tax credit and bank loans accrue interest as soon as money is borrowed.
The fourth option is to save short-term within the Tax Free Savings Account (TFSA) for individuals aged 18. For older students, the TFSA can be used to put away money for school and invested tax-free. The short time horizon needs to be considered when investing the TFSA money, but part-time or co-op employment income can be placed in a high interest TFSA for tax-free short-term savings.
The fifth option is to use the Registered Retirement Savings Plan (RRSP) for education expenses, through the Lifelong Learning Plan. This plan can only be used by student’s who currently have an RRSP or if their spouse has an RRSP. It is not available for parents wishing to provide their child with money for their education. Students can start saving money in an RRSP as soon as they earn contribution room through earned income, including part-time and summer jobs, but requires the student to file their taxes (even if they don’t owe anything). You don’t have to be 18 to open an RRSP. It likely makes sense for young students to delay deducting the RRSP contributions from their income until they earn more money. The tax shelter benefit of using an RRSP will be zero, or close to it, however, don’t ignore the benefits of getting used to regular savings in a tax-sheltered account without easy access. For mature students who may have worked full-time between studies, their RRSPs might be more significant and can make up a larger portion of the education funding.
These examples of education income don’t require a great deal of planning in advance. My next post will talk about how to save for your child’s education while they are young and you have time to invest.
