Stretched thin, parents have swath of options to save for children's education

MONTREAL -

Parents are finding it tougher than ever to save for their children's post-secondary education as the rising cost of living ramps up financial pressures.

But the mainstays of post-secondary saving -- RESPs, especially -- remain key tools, as do clear goals and plenty of planning.

Julie Petrera, a senior strategist for client needs at Edward Jones, said the first step is getting a handle on cost estimates, which can range from thousands to hundreds of thousands of dollars, depending on the type and length of schooling and whether the child is leaving home.

Other considerations include whether family members, such as a grandparent or the child themself, will contribute and where education ranks on parents' list of savings priorities.

"Are they paying for post-secondary education and saving for their own retirement and funding other expenses, like renovations and vacations?" Petrera asked.

According to an online survey of 1,000 parents with at least one child under 18 by Embark, a company specializing in education savings, some 73 per cent of parents said saving for college and university has been harder recently.

The survey also found just over half of respondents said they would go into debt to pay for their child's education.

The Registered Education Savings Plan (RESP) offers a tax-deferred investment account that has been used by millions. More than 481,000 students withdrew funds from an RESP in 2021, according to Employment and Social Development Canada.

Ottawa matches 20 per cent on the first $2,500 put toward an RESP each year, via the Canada Education Savings Grant (CESG), for a total of $500 per year, with higher rates available to lower income families. The lifetime maximum grant amount is capped at $7,200, while total contributions to RESP accounts are limited to $50,000 per beneficiary.

Low income families may also be eligible for the Canadian Learning Bond, which does not require RESP contributions.

RESP beneficiaries in British Columbia may be eligible for an additional oneΓÇætime $1,200 grant, while those in Quebec can enjoy a refundable tax credit with a lifetime maximum of $3,600.

"The RESP is great. It is designed to help with affordability," Petrera said. "But on the flip side there are some restrictions on these plans … on who can withdraw the funds, when they can withdraw them and why."

RESPs can comprise a major part of a family's education funding, but should not be viewed as a "standalone" plan, Petrera said. Non-registered investment accounts offer a supplementary option.

"There are no grants associated, they are fully taxable, but they have no restrictions. You can put money in up to any amount and withdraw at any time for any reason," she said.

A tax-free savings account provides another vehicle. Students themselves can't open one until they reach 18, but parents or grandparents can use their accounts to help save.

"My advice on that would be to work with an adviser or work with a professional that understands the pros and cons and the ins and outs of all of these plans to determine what is the best mix to maximize what the client's objective is," Petrera said.

Automatic contributions toward a plan are a simple, effective way to build a nest egg.

"We think that if each pair can make 50 bucks a month (per person) of contributions, they'll get $37,000 by the time their kids hit 18 and go to post-secondary school," Embark CEO Andrew Lo said.

He stressed that parents should educate themselves about education. One in three polled by the company did "not know enough to even guess" how much post-secondary schooling costs.

Erika Shaker, director of the national office of the Canadian Centre for Policy Alternatives, said costs are going up and everything's getting more expensive.

She pointed to a shift in education funding from Ottawa a couple decades ago that prompted most provinces to download more of the cost onto students or, in the case of Quebec, "two-tiering" the price between in-province and out-of-province pupils.

The labyrinth of funding programs and rules sometimes acts as more of a barrier than a relief, she added.

"Student assistance programs are a patchwork, they're messy, they're opaque. They're actually quite difficult to navigate and they can change midway through a degree," Shaker said.

"We have gone to a user-pay model that disproportionately impacts -- negatively -- students who have to borrow, unfortunately, to pay for post-secondary education."

This report by The Canadian Press was first published June 8, 2023.