How to pay for university: a comprehensive guide

When Molly Miller was growing up in Fredericton, she daydreamed about going away to university. She wasn’t sure exactly what she wanted to study, or where. She considered theatre in Toronto, which would put her 1,300 kilometres—and roughly a million miles, emotionally—from her hometown. She liked the idea of living on her own, though, and the arts and culture scene of a big city was appealing too. Then, toward the end of grade 11, she did some math.

Miller figured it would cost her $120,000 over four years, factoring in out-of-province fees, accommodation and all the other expenses that come with living on your own. Because she wasn’t set on a certain path—and the one she was toying with didn’t offer much in the way of a guaranteed career with good pay—Miller opted to stick close to home. This year, she’s graduating—debt- and regret-free—with two bachelor’s degrees, one in psychology and another in leadership, from the University of New Brunswick. Now, she’s thinking about grad school. 

Canadian undergrads pay an average of $7,076 per year in tuition fees, up three per cent from last year. That’s more than double what Miller and her classmates’ Gen X parents would have paid in 1990. Back then, tuition cost an average of $2,964, in today’s dollars. Factor in rent or residence fees and other expenses, and a four-year post-secondary education can now cost over $75,000, according to a recent study by education savings and planning company Embark. 

Miller financed her studies through a combination of scholarships and RESPs, which her parents started contributing to as soon as they stopped having to pay for daycare. Miller’s grandparents topped it up with cash on her birthdays. RESPs, or registered education savings plans, are the main way Canadian families save for post-secondary schooling. Parents (or anyone else) can open an account with their bank, another financial institution like a credit union, or a dedicated RESP provider. Any money they put in until the end of the year the child turns 17—and up to a maximum of $2,500 a year—is matched by the federal government at 20 per cent. The government’s maximum annual contribution, called the Canadian Education Savings Grant, or CESG, is $500. (B.C. and Quebec have contribution matching programs on top of the federal grant.) While contributions aren’t tax-deductible, savings grow tax-free. 

Uptake of RESPs is increasing: in 2019, over half of Canadian families with kids had one compared to just 15.9 per cent two decades earlier. But research consistently shows RESPs disproportionately benefit the wealthy. Households earning more than $100,000 are 50 per cent more likely to have an RESP compared to low-income families. The Canada Education Savings Grant is one of the primary ways, along with student grants and interest-free loans, that the federal government helps pay for Canadians’ post-secondary schooling. But it’s only administered through an RESP—no RESP, no CESG. And the less you contribute, the less the government does, so low-income families access much less of the federal money earmarked for education.

Anne Arbour runs the financial education team at Credit Counselling Society, a non-profit that helps Canadians learn about, and manage, money and debt. She says “start saving early” is the standard advice when it comes to paying for university. But in her experience, that’s not a possibility for many families, including newcomers and those with lower incomes. Plus, with the rising cost of living, there’s simply less money to go around. Another study by Embark found that 40 per cent of parents polled had stopped saving for their child’s education because of how much everything—food, gas, housing—is now costing them.

Still, the majority of parents surveyed felt it was their duty to at least contribute to post-secondary schooling costs. More than half said they’d go into debt to help cover the bill, and 61 per cent would postpone their retirement. Before remortgaging the house, it’s worth thinking through all the other ways parents and students can cobble together the funds. 

RESP savings

Kameela Nash’s parents started making RESP contributions for her and her brother when she was four, throwing in government child benefits when they could. Nash used this money—which amounted to $15,000—to finance a diploma in journalism at the British Columbia Institute of Technology. Then she used a bit more of it, plus money she had earned from a part-time job as a lifeguard and some student loans, to pursue a bachelor’s in business administration so she could get a job in communications. 

But even families who didn’t start when their kids were young can still take advantage of the Canadian Education Savings Grant until the end of the year that their child turns 17. A contribution of $208 a month maxes out the annual government contribution, and if a family starts when the student is 15, that could grow to nearly $10,000 by the time school starts, assuming a 5 per cent rate of return. But every little bit helps—three years of $50 monthly contributions translates to a possible $2,400 when factoring in grants and a return rate of five per cent.

Strategic withdrawals

Those who do have some RESP funds set aside can make the most of them by being mindful of how they withdraw the money. First, it’s important to understand the components of the fund. There are three kinds of funds in the account: the money families put in (called the capital), the money contributed by the government (in the form of the Canada Education Savings Grant or the Canada Learning Bond; see next section), and the growth, which is the interest that accumulates over the lifespan of the account. When it’s withdrawn, it comes out in two forms, with different tax implications. The growth and the grants come out as Education Assistance Payments, or EAPs, which the student pays tax on. The capital is withdrawn tax-free.

Experts usually advise families to withdraw EAPs early on, when a student’s income is lowest, and make capital withdrawals later, when there might be more income from co-op placements and summer jobs with decent wages, meaning a higher tax bracket. Plus, EAPs have to be used within six months of finishing school, otherwise unused grants are paid back to the government. Leftover capital and growth can be transferred to an RRSP, provided there’s contribution room. 

Canada Learning Bond

The Canada Learning Bond, or CLB, is a government initiative that provides eligible families with an initial grant of $500, plus an additional $100 for each year of eligibility (up to age 15), to a maximum of $2,000. It’s meant to help low-income families kick-start post-secondary savings—for 2024, the income threshold is set at $53,359 for families with three or fewer kids. To apply for the CLB, families just need to open an RESP account. After that, the application is automatic—no contributions required.

However, because fewer low-income families open RESPs, only four out of 10 eligible families end up receiving the CLB. But it’s not too late for families to apply, as long as the student is under 21, as the payments are retroactive. For many families, there will be at least one year that put them below the income threshold—perhaps early on, when only one parent was working— qualifying them for part of the grant. ​​Students over 18 can even apply for the grant themselves by opening an RESP account.

Student loans and grants

The thought of graduating from university with thousands of dollars in student loans is daunting. Experts say that if the choice is between the parents or the child taking the loan, it’s important to remember the child has the rest of their working career to pay it off. Parents, on the other hand, are more likely getting close to retirement age, when taking on a large amount of debt could seriously curtail plans. The terms and conditions for student loans are also often more forgiving than the debt parents would take on.

Students apply for federal and provincial aid via a single application, administered through programs like Saskatchewan Student Aid or the Ontario Student Assistance Program. The amount awarded depends on factors like income, family size and tuition costs, and comes in two forms: loans, which you have to pay back; and grants, which you don’t. Many students don’t realize that they can leave the loan and just accept the grant portion. To manage—and maximize—loan money, students can put the amount, usually paid out at the beginning of the semester, in a high-interest savings account, giving themselves a monthly “paycheque.”

Last year, the federal government permanently eliminated interest on the federal portion of the loan, saving grads roughly $520 per year. In many jurisdictions, interest still accrues on the provincial or territorial portion of the loan, with the exception of B.C., Manitoba, New Brunswick, Nova Scotia, P.E.I., and Newfoundland and Labrador.

Half of students have some amount of debt by the time they graduate, and the most recent data available (from 2015) shows the average amount for those finishing university is $28,000. Repayment typically begins six months after graduation. Recent grads should prioritize paying down higher-interest debt, like credit cards or personal loans, while making the minimum payments on their student loan. And if they’re making below a certain income, they may be eligible for reduced payments—or no payments at all—for a certain period. The National Student Loans Service Centre can help set up a payment plan that makes sense. 

Scholarships

Nearly $250 million in scholarships is up for grabs in Canada, and it’s not all tied to academics. Many are based on extracurriculars, community involvement, and even where a student’s parents (or grandparents) work or what union they’re a member of.

A good place to start looking are online scholarship aggregator sites, like ScholarTree or Scholarships Canada. These databases list awards and allow users to browse according to their field of study, extracurriculars, cultural background and more. A significant number—one in 20—go unclaimed. Experts suggest students in their last year of high school set aside a few hours a week to research post-secondary funding.

Once students know what school they’re attending, they should contact their financial aid office. They can help with applications for entrance scholarships, as well as bursaries and awards administered by the school (and government aid applications, too). Many have a general application process, meaning students apply once and get matched automatically to funding opportunities.

Student contributions

According to a recent study by the Canadian University Survey Consortium, nearly six out of 10 students work while in school, and that number is rising. Josh Elias is one of them. He’s attending the University of Ottawa, away from his home near Bathurst, in northern New Brunswick. The loans and bursaries Elias applied for didn’t quite cover his out-of-province tuition fees, residence and living expenses, and he’s making up the gap with money he’s earning as parliamentary guide—a dream job given his double major in political science and history. Elias works about 15 hours a week, mostly on the weekends, earning $22.29 per hour.

Work-integrated learning programs are another source of income, and they’re increasingly common across fields of study. Co-op participants in Canada are among the highest paid in the world; students at the University of Waterloo earn, on average, between $9,000 and $21,000 per placement term. Students should try to put a portion of their earnings, no matter how small, toward repaying loans if they have them. Parking $50 a month in a TFSA will turn into $2,400, plus whatever return was generated over four years.

Consider sticking close to home

Living at home isn’t possible in every scenario: many Canadians don’t live near a university, for one thing, or they are interested in a program that’s not available nearby. For some, money and family dynamics means keeping everyone under one roof isn’t an option. But for those who can swing it, having students live at home can save a lot of cash, as residence or off-campus housing can double expenses, adding as much as $40,000 to $50,000 to the total bill. 

And there are other ways students can get the “university experience”, like joining clubs, playing sports and doing as many orientation week activities as possible. For those itching for that dorm room experience, after first year, students can apply to be a residence adviser at their school, earning cash instead of spending it.

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