Fee-Only Financial Planning / Advising in Kitchener Waterloo Cambridge - WD Development


Education is an important step in many careers, and it can be expensive.  Five ways to fund education costs


1. Using a Registered Education Savings Plan (RESP) in Canada or a 529 plan in the United States


Both of these plan types are designed to give parents/grandparents/ family & friends a place to save for a child’s post-secondary education costs.  The contributions made to the plan are not tax-deductible, however, the investment returns within the plan are tax-sheltered until the money is withdrawn.  These accounts work for child up to the age of 17.  There is a lifetime maximum contribution, and there may be some annual limits that you need to be aware of.  The money within an RESP or 529 must be withdrawn for the purpose of education, otherwise there will be tax consequences on the investment growth and any government grants received.


2. Using a Tax-Free Savings Account (Canada)


Many people use a TFSA to save for education.  The contributions are not tax-deductible, however, the investment returns within the plan are tax-sheltered until the money is withdrawn. A TFSA can be used to save for a child’s education or your own return-to-school as an adult.  There are annual contribution limits; you can confirm your lifetime contribution room and amount available at myCRA.  There are no restrictions on the use of the money within a TFSA.


3. Using a non-registered account 


Depending on your education goals & costs, you may save in a non-registered account- either a savings account (no investment or market risk, the money is safe and the value will not fluctuate) or an investment account (investments work if you have a 3-15 year timeline for the money to grow).  There are no specific tax advantages in a non-registered account- any income that the account generates will be reported on your income tax return annually.  The benefit of using a non-registered account to save for education- you have a dedicated place for savings, you can track your progress and you will know how much you have when you start a program.


4. Borrowing 


Student loans, bank loans and using a line of credit (secured or unsecured) are possible when you are looking to increase your education.  In my experience, it’s important to understand the timing of payments: a student loan will not require payments until you graduate; a bank loan will require payments immediately; a line of credit requires interest-only payments as soon as you start borrowing.  It’s important to understand how much debt you may end up with at the end of your program.  It’s important to understand the job prospects and starting salaries in your chosen field.  It’s important to include your other life goals when you are mapping out your potential debt load at the end of your program- are you planning to get married? have children?  do you anticipate moving at the end of your program?  


In Canada, you can borrow from your Retirement Savings Plan (RSP) using the Lifelong Learning Program- this gives you access to funds, some time to pay back and there's no interest applied (unlike a regular loan or line of credit).  I advise using this option very cautiously- numerically, it looks good.  Practically speaking, it doesn't work well for most people who use it and they don't end up 'ahead' of other borrowing methods.  In my experience- if you can give your RSP account one job- 'be there for my retirement' and work out your education costs another way, it is less confusing, less discouraging and easier to pay back the costs.


5. Earning income while in school or accessing funding


Is it possible to work while you’re in school?  Can you buffer the costs of your program and your living costs with a part-time job?  If you’re returning to school, can you attend your program part-time and still work?  Are there any scholarships/bursaries/ funding available?  Check with the institution that you are applying to- there are numerous programs that are under-used; largely because they are hard to find.  Ask questions early in the process and broaden your search.  My favourite example- if you grew up in the foster system or as a Crown ward, check out this list for the options in Ontario.  Every province has options for kids who grew up in care and now want to pursue post-secondary education. 

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Sara McCullough
May 17, 2024
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