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Most students fund their post-secondary education from a variety of sources, including savings, loans, scholarships, part-time work, and the Bank of Mom and Dad. Many end up getting by on a shoestring (which, arguably, has always been a description of student life). But it doesn’t really have to be this way if you budget properly – and if parents or grandparents opened RESPs 17 years ago. Here are some tips on funding student life.
Apply for every available bursary, scholarship, or grant that you can find related to your area of study. Consult with your high school guidance counsellors or your prospective university or college. Many grants and bursaries are available in niche areas that go unawarded simply because no one applies for them, but you’ll have to do your research. Student loans are also a source of funding, but require a rigorous application process, and eligibility is means tested. They also have to be repaid in the future. So use student loans sparingly or avoid them if you can.
Economize on books and study materials by buying used textbooks, downloading electronic versions, sharing with roommates or classmates, borrowing from the school library, or using older editions if possible.
Live in a shared residence if on campus or live with roommates off campus to share costs like utilities and Internet connections. Before signing a lease for an off-campus residence, it’s prudent to have a parent or lawyer read over the contract, especially if the parent is guaranteeing or signing the lease (which is frequently a requirement of landlords offering student accommodation). You’ll have to pay special attention to things like liabilities for damage, insurance, deposits, length of the lease and so on. If it’s a shared arrangement, be sure that all legal obligations, including rent, utilities, insurance, and liabilility of each roommate are set down in writing – these can really add up if the dwelling is house.
Budget for the cost of meals. If living in residence during the first year of university, check on the various meal plans available. Often, schools will offer plans ranging from full-blown three meals a day to a ticket system. These are often offered for off-campus students as well. If you’re taking responsibility for your own meals, shop wisely, look for discounts, and cut eating out (and the accompanying alcohol intake) to a minimum – that’s a real cash vampire.
Control transportation expenses, especially if you have a car. In addition to gas, maintenance, and insurance, you’ll likely also have to pay for parking, possibly both on and off campus. Seriously consider public transit for getting around. These savings can really mount up.
A Registered Education Savings Plan (RESP) can be an good source of funding for post-secondary education expenses. Contributions to the plan grow on a tax-deferred basis inside the plan. So the earlier an RESP is established, the longer the magic of compounding has a chance to work. Many parents and grandparents open RESPs for children and grandchildren at one or two years of age and contribute regularly thereafter, until the plan matures – typically when the child enrols in post-secondary school.
Funds for tuition received from Registered Education Savings Plans (RESPs) are called “Educational Assistance Payments” (EAPs). The rule is that the student must be enrolled in a qualifying post-secondary educational program (three consecutive weeks and 10 hours per week), whether in person or by distance learning.
The federal budget 2023 raised the maximum EAP limits, effective March 28, 2023. An $8,000 maximum EAP ($4,000 for specified educational programs) can be now be made to a student for the first 13 consecutive weeks for studies in a qualifying educational program. After that, there’s no limit on EAPs that can be made, provided the student continues to qualify to receive them. Note that previously paid EAPs cannot be modified. Check with the plan sponsor for details of modifications in a specific plan. If the student drops out for 12 months, the $8,000 maximum applies again.
RESP payments are taxable income, but this isn’t all bad news. The student reports EAPs on their tax return as income for the year they receive them. Presumably, the student will be in a very low tax bracket and therefore will pay little or no tax on the EAPs.
Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, financial mentor, and motivational speaker.
Notes and Disclaimer
Content copyright © 2023 by Robyn K. Thompson. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.
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