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Is student debt slowing down our lives?

As students work on paying off their debt, they are also holding off on getting married, having children and buying homes.
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Gina Monaco, August 16, 2013 2:54:50 PM

It takes a village to raise a child and $243,660 – that’s the average cost of raising a child to age 18. When we break that number down it comes to $12,825 per child, each year or $1,070 per month.  That’s before you send them off to university.

It wasn’t too long ago that getting a college or university education was relatively easy to pay for, with the guarantee of better employment and higher earnings once you graduated. But like everything else, that too, has changed. The rising costs of higher education are becoming a real problem.

According to a survey conducted by BMO, 86 per cent of students in Canada expect to graduate with debt and 21 per cent expect to graduate with more than $40,000 in debt.  Students in British Columbia are the hardest hit since the B.C. government eliminated non-repayable options such as grants. Students there also pay higher interest rates on student loans compared to other provinces.

There is also no guarantee of a job once students graduate. The jobs market has become highly specialized. When once an undergraduate degree was enough to ensure employment, a post-graduate degree is where it’s at today. Now students are adding more to their debt load by staying in school longer, knowing they can ultimately earn more.

As students work on paying off their debt, they are also holding off on getting married, having children and buying homes. Consumer spending slows down as well. How can families prepare for the high costs of getting an education?

The easiest way is to open a Registered Education Savings Plan (RESP). This tax-sheltered plan helps you save for a child’s post-secondary education. You can contribute any amount to an RESP, subject to a lifetime contribution limit of $50,000 per beneficiary. Unfortunately, you can’t deduct the contributions from your taxable income but the investment earnings are tax-deferred. When the earnings are taken out to pay for an education, they are then taxable to the student. You can contribute to an RESP for up to 31 years, and the plan can stay open for a maximum of 35 years.

There’s also the Tax-Free Investment Savings Account or TFSA. It’s a flexible, registered, general-purpose savings vehicle that allows Canadians to earn tax-free investment income and complements existing registered savings plans like the Registered Education Savings Plans (RESP).  As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to it. All investment income earned is tax-free and withdrawals are tax-free.

Another way is for students to work to offset some of the costs. The Vancouver Sun reported one great example of, Elisa Kharrazi, a third-year medical student at UBC who finished her undergraduate neuroscience degree with no debt and no help from her family by taking an extra year to finish. She lived on a “student” budget and worked as a lifeguard and taught swimming.

Students can also choose a university close to home so they can stay at home rather than take on the costs of living on their own. If that’s not an option, it can be less expensive to live off-campus in shared accommodation rather than in a dorm.

If parents are self-employed, consider hiring your child. There can be tax benefits to doing this along with knowing you’re helping them with educational costs.

And how about scholarships or bursaries? Contact the Financial Aid departments at the school and read through what’s available. Parents can also check to see if their employer or service club offers any financial help for children of employees.

The bottom line is planning. Get a head start on saving for a child’s education, whether through an RESP or any other savings vehicle like a TFSAA.  Your child will thank you for it.

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Gina Monaco

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