Peter Andreana, a partner of downtown Burlington based Continuum II is a financial Planner and financial security advisor. He talks frankly about the real costs of higher education.
How Much Will University Cost in 2017 in Canada?
Congratulations! You’ve started High School (or your child has – in which case, we recommend reading this together). You have a lot of exciting times ahead of you, and some character-building challenges too. Along with achieving the grades you want, and the extra-curricular successes too, you’re likely already thinking about what you’ll do after you graduate. Well, good! You should be thinking about it, even though it’s four years away. You don’t need to decide what University or College you’ll be going to yet – or even what program you might like to study – there’s plenty of time for that. But…you should definitely start saving for that day starting right now.
There’s no time like the present to create a financial plan to save the money you need to pursue your post-secondary dreams. Let’s get right into the details so you know exactly what kind of costs you’re looking at. Let’s say you want to go to the University of Toronto. Great school…lots of interesting programs of study…and not too far away from Burlington when you want to come home for Thanksgiving so no expensive flights to consider.
A detailed look through the UofT website will show you that University of Toronto’s tuition cost for 2013 is $5,865 for a Bachelors Degree program in Arts & Sciences. Tuition typically rises approximately 3-4% per year, which is higher than general inflation (at least in the recent past where it has ranged from only 1-2%), so if that trend holds, by 2017 it should be just over $6,600. That’s a lot of money, and that’s just the tuition to get you into classes for 8 months. If you’re looking to go into Applied Sciences & Engineering, the basic tuition jumps to $12,363. That means over $14,000 for tuition alone in 2017. Pre-Med is over $20,000 for the 2013/2014 school year. That’s $22,600 in four years. Wow.
In addition to getting in the door of your classrooms, you’ll also need books to support your learning, and the basics of food & shelter if you want to live on (or near) campus. There’s nothing that compares to the excitement and camaraderie of living in residence or near campus with fellow students and new friends, so do your best to budget for this option so that you can choose what you really want when the time comes. UofT’s student services suggests presently budgeting $1,000 per year for incidental costs, plus at least $1,000 for books & class supplies, along with between $5500 – $15000 for food & shelter for 2013/2014. Just for one year!
What does this all add up to at a minimum by 2017? A conservative estimate would be at least $15,000 if you are doing an Arts & Sciences degree, living in a shared rental dwelling near campus, making your own budget-friendly meals, and living very frugally (ex: no shopping trips to The Eaton Centre or rounds of drinks at the bar). For a four-year degree, that’s at least $60,000, and that is a lot of money to save. That’s a brand new BMW paid in-full!
Sound daunting? Well don’t stress out just yet. Everyone is in the same boat. And certainly not everyone has the expectation that their parents can or will pay for the whole bill. Studies we’ve encountered in the past actually show that the students who had to contribute significantly to their own education expenses outperformed academically when compared to those whose parents paid the entire amount for them. This makes perfect sense as it is only logical that you would try harder to succeed when you’ve worked hard for the money to get yourself there in the first place. So if you have to pay some or all of your post-secondary expenses, consider it a blessing in disguise rather than a hardship.
It’s worth noting that there are loans and grants that can help. To find out more information about the Student Loans and Student Grants process, you can visit the CanLearn website. These loans and grants can make a significant difference to your ability to afford post-secondary education. While grants are yours to keep, loans will ultimately need to be paid back after you graduate. What is also very important to know is that the interest rate that kicks in after graduation can be often much higher than the going rates you could get from a bank loan and interest starts accruing immediately after you graduate, even if you don’t have to make payments right away. There are also criteria you must meet in order to quality for loans and grants, so this is a process you should investigate as early as possible in order to help you set realistic goals for how much you should save over the next four years. For example, those coming from a middle-income family of 4, where the household income is over $84,569 would not qualify for a grant this year, although you could still potentially qualify for a loan.
Although, you and your parents will create a savings plan right now that will help you save as much as possible before University begins. That way, if you are not eligible for a grant or loan, you will still be set up to successfully budget your way through your desired degree. Even if you do qualify for grants or loans, it will be ideal to have extra savings in the bank earning interest while you’re pursuing your degree, and finish school with ample funds to a) repay any loans before interest kicks in and b) begin your career and your life as an independent adult.
Now that you know what you need to save (ex: $60,000), the next step is to review where you’re at right now. Do you have an RESP that your parents set up for you? Do you have savings bonds from Grandma & Grandpa that haven’t matured yet? Take stock of your existing savings – if any – and factor that into what you still need to save.
This is also a good time to review what exactly those existing monies are invested in and ensure they are secure now that you’re inching closer to post-secondary life. Where RESPs are concerned, for example, know that the closer you are to starting post-secondary education, the more safe and conservative your RESP investments should be. That may involve rebalancing and reviewing your asset allocation within that RESP at this time given that its now only four years away. You (or your parents/financial planner) may have had that money in riskier investments to maximize growth while you were younger, but conservative investments are crucial right now, as you cannot afford to be invested in things that have a chance of fluctuating before you graduate (like volatile stocks). You want to avoid losing any value this close to when you need those funds. It may be wise to have the money in a high interest cash account or a ladder GIC for added stability and predictability – especially for budgeting purposes.
Even if you are in a position where you or your parents have never contributed to an RESP yet, it is still not too late to start as long as you’re 15 or younger. You must, however, start contributing before you turn 16 or you will not be eligible for the free government contribution that makes RESPs so attractive. That government contribution is known as the CESG (Canada Education Savings Grant) and amounts to at least 20% of the first $2,500 you contribute in any calendar year. There are more conditions and benefits to be aware of (ex: $2,500 unwithdrawn dollars must be contributed in the year you’re 15 and haven’t ever contributed yet, or $100 minimum contributed and unwithdrawn each year from age 12-15) if you started a bit late. You can find out more information about the CESG here.
Factor in any additional funds you may be expecting over the next four years, such as annual contributions from parents, grandparents or family. Do your best to factor in the interest or earnings you’ll see from those existing funds as well in the next four years. The remaining amount is what you will need to earn and save before University/College starts. Any shortfalls would suggest that you need to consider earning that additional income via a part time job throughout high school, and potentially while you are at University as well.
So if you need $60,000 and you have $20,000 in savings planned from existing investments and/or parental contributions, you have around $40,000 left to raise in the four years you’re in high school. That’s $10,000 per year. Totally doable with a part time job, especially in the summers when you can work more hours. Given minimum wage is $10.25, you would need to work 975 hours per year to earn $10,000 (a little more actually, considering there are government deductions on your paycheck). That boils down to around 20 hours per week for 52 weeks. Or…if you can work full time in the summer for just 8 weeks, that’s 320 hours right there, leaving only 15 hours per week of part-time work the rest of the year. That’s three 5-hour shifts per week. Not so daunting after all!
Remember, the sooner you get your plan on paper, the sooner you can start making it a reality.
What is your plan for post-secondary saving? Do you feel better prepared now?
Continuum II Inc. is based in Burlington, Ontario and provides Financial Planning, Group Insurance Brokerage Services, Succession Planning and Wealth Management Advice to Individuals and Corporations.