Funding an education: Degrees of preparation

As students return to post-secondary schooling this fall, some will be faced with expectation from their parents to chip in for their education.

  • Sep. 8, 2011 2:00 p.m.

Left to right: Savannah Penner

As students return to post-secondary schooling this fall, some will be faced with  expectation from their parents to chip in for their education.

In many cases, it will be because many parents hadn’t started saving.

A recent study – the TD Canada Trust 2011 Education and Finances Survey –  showed that 45 per cent of parents across the country whose children are eligible to begin post-secondary this season hadn’t started saving as of July.

Tuition fees across B.C. vary greatly depending on what program is pursued.

Excluding residence, meal plans, fees, and supplies, a typical 16-week term for a full-time student at the University of the Fraser Valley costs between $1,800 and $2,200.

At the University of British Columbia, a term ranges from $4,400 to $6,800.

And on the island, a term at the University of Victoria is around $2,400.

A term at Simon Fraser University starts at approximately $2,000.

However, by example, in reality it’s over $8,000 when other fees, supplies and living costs are added.

“For university and college students living away from home, the cost of pursuing an undergraduate degree is approximately $80,000, so it’s no surprise parents are struggling to make ends meet,” said Shahz Beig, associate vice-president, Personal Lending, TD Canada Trust.

Nineteen-year-old Larissa Mackie, who is entering her first year in the bachelor of arts program at the University of the Fraser Valley (UFV), is in that category.

“My parents didn’t do any saving for my schooling, but they’re still going to help pay for the books and tuition,” said Mackie, who attended the UFV orientation day at the Abbotsford campus last Thursday.

It’s younger Canadian parents who take home top marks when it comes to saving early for their children’s education.

Seventy per cent of parents who have children eligible in 16 or more years to attend post-secondary education have already started saving, while 57 per cent have started for kids eligible in one to five years, and 60 per cent for kids attending in six to 10 years.

Nine in 10 parents under the age of 35 started saving for education shortly after their child’s birth, compared with only 60 per cent of parents currently aged 45 to 54, and 80 per cent of parents aged 35 to 44.

Meanwhile, many parents expect their kids to chip in for their education – either from earning a scholarship, taking a student loan, working throughout the school year, or with money earned at a summer job.

Approximately 35 per cent say they will pay for the essentials like tuition, books and rent, but expect their kids to pay the other expenses.

Seventeen-year-old Savannah Penner, who is entering the bachelor of arts program at UFV to be a teacher, has been saving for school by working as a waitress.

“I’ve been saving for a few years, not really knowing what I was saving for, but now it’s being used for school.”

While her parents will be helping with the costs, she also received a couple of scholarships, which she thinks will help cover most of her first-year expenses.

On the other hand, 18-year-old Mathea Lawrance, who also wants to be a teacher, has been saving for a long time with her education in mind.

“My parents drilled it into me to start working and saving.”

While her parents will help cover some of the costs at UFV, a scholarship will help Lawrance cover most of her first year as well.

“After that, I will probably have to take out a student loan because I want to transfer to UBC,” she said.

Only a slim seven per cent will have their entire schooling paid for, such as 19-year-old Jessica Carson.

“They’ve always been saving – since I was little,” said Carson of her grandparents, acknowledging her good fortune.

WHEN SHOULD YOU START SAVING FOR POST-SECONDARY EDUCATION?

The sooner you start saving for your child’s post secondary education, the better.

That’s the advice from Allan Catlan, an administrator at the Edward Jones financial group in Abbotsford.

“We have clients who get social insurance numbers for their newborns and start saving right away,” he said, adding that that’s all that’s needed to set up a Registered Education Savings Plan (RESP).

Like any other investing, it’s how long you are in the market that is the most important factor.

Sooner is better for a few reasons. First, because of compound interest, which is interest added to your principal investment. The longer you stay in the market, the more you are going to gain.

Secondly, the ups and downs of the market will eventually even out.

Catlan recommends putting away $2,500 a year, per child. That works out to approximately $200 a month, per child. The federal government will contribute up to 20 per cent of what is put into an RESP, to a maximum of $500 a year.  In order to maximize the grant, your contribution should be $2,500 a year.

If that number is out of reach, then it’s best to put something away rather than nothing, says Catlan.emphasizing that parents should “always try to start now.”

For a list of provincial grants, bursaries and scholarships, visit www.gov.bc.ca and search Student Aid.

For localized information, visit the financial office of a post-secondary institution.

THE PROS AND CONS OF STUDENT LOANS

by Ashley Wray and Kerrie-Ann Schoenit

With the rising rates of tuition, student loans are increasingly a chosen option to help fund post-secondary education.

Yet an average of 14 per cent of students now default on loans to pay for their schooling.

For many, paying off the debt takes between 9.5 years to the maximum allowable term of 14.5 years, according to the Canada Student Loan Program.

As more students warm to the idea of a loan, the national student debt continues to rise. Currently, it sits at just over $13.8 billion, according to the Canadian Federation of Students.

While B.C. doesn’t have the highest amount of debt – students in the Maritimes carry that burden – this province has the highest interest rate in the country at 2.5 per cent above prime.

That’s generated a call on the provincial government to reduce the interest rates on student loans.

UFV President Mark Evered said he would also support a call for review of the student aid issue, looking not only at the interest rates but pay-back periods, and the availability of scholarships and bursaries, as well.

Evered notes that it’s been an issue for a long time, adding the impacts on students varies tremendously, depending on the support they receive from family.

“Many of our students are choosing to work while they go to school rather than accumulate debt. Of course, that has the consequence of delaying the length of time it takes them to complete their degrees…”

A recent StatsCan study found that 57 per cent of the 2005 graduating class had student loans, up from 49 per cent the year before. On average, student debt on graduation rose from $15,200 to $18,800 during the same decade.

In addition, the number of graduates who owed $25,000 or more on their loans increased to 27 per cent in 2005 from 17 per cent in 1995.

Forty-five-year-old Vladimir Dvoracek, head of the economics department at UFV on student loans, believes the numbers reflect an increase in education costs.

Dvoracek remembers paying $900 a semester at the University of Waterloo when he attended over 20 years ago. The current tuition at the same school per semester is around $5,000.

“Has the student income gone up by a factor of six? The answer is no. So what is it that’s happened that’s made tuition and the expense of going to university so expensive? The economy is supposedly growing in real terms. We’re supposedly richer than we were 25 years ago. From a student’s point of view, it’s actually more expensive.”

Dvoracek attributes the issue to a couple of factors.

Mainly, a “transfer of wealth from one generation to another,” with one generation choosing not to subsidize the schooling costs of the next.

In addition, there is now a much higher rate of people attending university, making it more expensive for the government.

And finally, the types of grants made available have changed, “making it more difficult for less affluent students to go to university without accumulating this large debt.”

With an average loan at about $28,000, and an income level after graduation at less than $30,000, Dvoracek believes it’s too difficult for students to pay off their debt.

 

 

 

 

 

 

 

 

 

 

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