The Learning Centre:
4 ways to finance continuing education
(Reading time: 4:00)
Whether you’re looking to fund your child’s post-secondary education, or take courses to enhance your own skills so you can move up the pay grid—higher learning costs money.
As each year passes, that cost rises.
According to numbers from Statistics Canada, post-secondary tuition (for the 2018-2019 school year) increased by an average of 3.3% across the country for undergraduate studies and 2.4% for graduate studies. However, as an educator, you know that education pays off. It’s just a matter of finding the funds to actually pay for it.
That’s where the 4 following strategies can help finance your child’s (or your own) continuing education quest:
#1: REGISTERED EDUCATION SAVINGS PLAN (RESP) – ideal for long-term education savings goals.
You already know that RESPs are a great investment option for planning ahead for your child’s post-secondary education, especially considering the CESG money (more on that in a bit). But did you know you could also open an RESP for yourself or your spouse, as an adult who wants to further their education? While adult RESPs won’t benefit from the Canada Education Savings Grant (CESG), you will benefit from tax-free earnings (as long as they stay in the plan).
A few things to know about RESPs:
- If the RESP is for a child 17 or under, you will benefit from free contributions courtesy of the federal government in the form of the CESG—which adds up to an additional 20% of your RESP investment on the first $2,500 per year. That’s $500 annually up to a lifetime maximum of $7,200 per child!
- Eligible parents could also receive another grant for their child in the form of the Canada Learning Bond (CLB) which is money the government deposits into each eligible RESP which can total up to $2,000. Through the CLB, the government will add money to the RESP every year, even if you do not add money. (Click here to learn more about CLB eligibility requirements.)
- Earnings are tax-sheltered, like with an RRSP. When the money is withdrawn, the CESG money and earned investment income will be taxed at the child’s tax rate (zero in some cases).
- While there is no annual contribution limit (as there is with a TFSA), the amount of annual contribution room which is eligible for the CESG is $2,500. RESPs allow for a lifetime contribution limit of up to $50,000 per beneficiary.
- An RESP can stay open for up to 36 years. Under specified plan rules, it can stay open for up to 40 years for beneficiaries eligible for the disability tax credit.
#2: LIFELONG LEARNING PLAN (LLP) – an ideal way to instantly borrow education funds.
Similar to the Home Buyer’s Plan, the LLP allows you to borrow from your Registered Retirement Savings Plan (RRSP). Except that instead of borrowing to buy a qualifying home, you’re borrowing to fund the cost of continuing education. The best part is that you can withdraw this money tax-free and interest-free, as long as you pay back your RRSP within a certain timeframe.
A few things to know about the LLP:
- It can only be used to finance continuing education in a full-time academic or training program for you, your spouse, or common-law partner; it cannot be used for a child’s education costs.
- You can make an LLP withdrawal of up to $10,000 from your RRSP in a calendar year (up to a maximum LLP withdrawal limit of $20,000).
- You can use the withdrawals for any purpose (i.e. the amount you withdraw doesn’t specifically have to be used for your tuition or other education expenses), as long as you meet all of the LLP conditions.
- If you don’t have an RRSP, you can’t open one up just to make an LLP withdrawal. The RRSP contribution must be made at least 90 days before you can deduct it from your income on your income tax and benefit return.
Be sure to check out the CRA’s website for a full breakdown of all LLP terms and conditions.
#3: TAX-FREE SAVINGS ACCOUNT (TFSA) – an ideal way to pay for education costs with no consequences.
Over the years, we’ve touted the many reasons for opening and contributing to a TFSA, such as using it to save for a ‘Summer Fun Fund’ or to financially prepare you to cover any expensive emergencies that may arise. Using a TFSA to save for an ‘education fund’ is probably your best option when it comes to financing the costs of higher learning because there are no consequences. No taxes to pay on withdrawals. No loan or RRSP contributions to repay (or deadline as to when you need to pay it all back). It’s education money that comes with no strings attached.
A few things to know about TFSAs:
- Maximum contribution limit per calendar year is $6,000 (as of 2019).
- As of 2019, the total cumulative limit is $63,500. So if you’ve never made a TFSA contribution, that’s the amount you can contribute as of this year.
- If you already made the annual contribution limit, any withdrawals cannot be re-contributed until the following calendar year (click here to learn about avoiding over-contributing to your TFSA).
#4: ONTARIO STUDENT ASSISTANCE PROGRAM (OSAP) – it’s there if you need it/qualify for it.
If you’re lower on the pay grid with teenage children who are about to embark on their post-secondary education, or if you’re looking to make a career jump later in life, perhaps you didn’t have the chance (or the budget) to contribute to RESPs or TFSAs. That’s where residents of Ontario can take advantage of grants from OSAP.
A few things to know about OSAP:
- Grants are available for all types of full-time post-secondary students (this includes mature and married students, as well as students with children).
- Under the new OSAP rules (amended in 2017), eligibility will NOT depend on the program level, or on the number of years an individual has been out of high school
- Those applying for full-time (OSAP-approved) programs can use this online calculator to find out whether or not they are eligible for free tuition or provincial grants
As we said in the beginning, education pays off. So to create an educator-specific plan to pay for that education, call on us.
Having served education members since 1975, Educators Financial Group knows the ins and outs of everything from pay grids to pension plans. Which means we can help you uncover ways to save for an education fund that works within your daily, weekly, and monthly budget.
Have one of our financial specialist contact you to put together an education savings strategy today.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.