Your Money & You - Part Two - The Cost of Learning

(This is part two in a five part CBC Radioactive series. Catch part one here and the audio interview from CBC Radioactive here).

Whether you're saving for your kids' education, putting yourself through university going back to school later in life, it all takes a large sum of money!

Let's start with the kids

I often get asked, when is the best time for parents to start saving for their children's education? And of course, the logical answer is as soon as possible. But how realistic is that? Considering what an expensive time it is in one's life to raise kids, now couples have to fret not only about paying down debt, starting an emergency account, topping up RRSPs but now school too?

I think a better question parents should ask is how much are they willing to save for their children's education and in balance with their own goals. That's a personal one up to your individual family needs. The second question should be, what's the best way to go about saving those dollars?
Let's start with the kids - savings for their schooling. One of the best savings tools in Canada for that is the RESP - the Registered Education Savings Plan. I won't cover it in depth (click here for more info), but the gist is that the government will guarantee you a 20% return (the savings grant) each year (in addition to the return on investment that you earn) up to a maximum of $7,200 over the lifetime of the RESP. The plan grows tax deferred and when the funds are withdrawn, are taxed in the hands of the child (likely no tax if they're not working).

Cost to keep in mind about going back to school as an adult

If you're thinking about going back to university or college, what kind of a financial hit should you be prepared for?

According to research by Statistics Canada, the cost for a university undergraduate degree, students in this country paid an average $5,366 in annual tuition fees in 2011 - 2012 compared with $5,146 last year.

So that's an increase of 4.3 per cent, and it follows an annual increase of 4.0 per cent last year.

University tuition fees range quite significantly across the country. Students in Ontario pay by far the most, with the average tuition topping out at $6,640. Students in neighbouring Quebec get the best deal with average tuition of only $2,519. Undergrads in Alberta paid more than the Canadian average with an average bill of $5,662. However, fees in Newfoundland and Labrador, as well as Manitoba, are also relatively low.

Keep in mind that it also depends which degree you choose. If it's medical as opposed to arts or business focused, for example, that will set you back considerably more.

Remember, there's more than just tuition to worry about

Other costs while going to school that you won't want to forget about budgeting for are compulsory fees, such as fees for athletics, student health services and student associations. These cost Canadian undergraduates, on average, an additional $820 per year. On top of that, of course, are the costs for books, food and accommodation. Given all of these costs, it is no wonder many students come out of university with significant student loan debt and have later in life students wondering if it's worth the investment. However, education is almost always a good investment - both for the individual student as well as for the broader economy.

Back to school (later in life) funding options

There are a couple of options such as a line of credit and the RRSP Life Long Learning Plan. Using a line of credit is pretty straight forward but you want to consider if the debt of obtaining that degree and the lost income during those years of study are worth the investment.

If you've been a prudent investor over the years and have a nice nest egg sitting in your RRSP, you may wish to use those dollars as a sort of loan from the plan to you (you will have to pay it back and consider that if you simply withdrew the funds from your RRSP, you'd have to pay tax on those dollars).

The Lifelong Learning Plan (LLP) allows you to withdraw amounts from RRSPs to finance training or education for you or your spouse (click here for more info). You cannot use the RRSP funds to finance your children's training or education, or the training or education of your spouse or common-law partner's children. You can withdraw up to $10,000 in a calendar year from your RRSPs. This is your annual Lifelong Learning Plan limit. Your spouse or common-law partner can also withdraw up to $10,000 in the same year you do. You can both participate in the LLP for one of you or you can participate in the LLP for each other. You cannot withdraw more than $20,000 each time you participate in the Lifelong Learning Plan . This is your total Lifelong Learning Plan limit. You have up to 10 years to repay the RRSPs. Generally, in each year of your repayment period, you have to repay 1/10th of your original Lifelong Learning Plan balance until the full amount is repaid.


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Kelley Keehn is a personal finance expert and author of seven books, including The Money Book for Everyone Else. For more information, visit www.kelleykeehn.com.

Do you have a money question? Drop Kelley a line at wealth@kelleykeehn.com