Start them off right, or that nest may not be so empty
With the total average cost of pursuing a four-year undergraduate degree while living away from home at $84,0001, the ability for parents to save enough to pay for their child’s studies can be challenging. As a result, students are taking on more debt - averaging $27,7472 for a graduating university student - and parents are more likely to find themselves with their grown children back home due to financial reasons.
“Funding a four-year degree can be very difficult, especially for parents with more than one child,” says Shahz Beig, Associate Vice President, Personal Lending, TD Canada Trust. “Even if parents can’t afford to pay for all of their children’s studies, they can still help them graduate with less debt by teaching them how to fund and manage their finances for post-secondary education.”
For many parents, helping their children prepare academically for their school of choice is the main focus. But the finances catch up fast. Regardless of when their children are heading off to school, Beig says putting a financial plan in place is critical. He provides advice on how to responsibly fund post-secondary education and repay debt after graduation.
Paying for school
“Post-secondary education can be the first major expense that younger Canadians have, and the greatest next to buying a home or saving for retirement,” says Beig. “That’s why it’s important for parents to talk to their kids well in advance of college or university about what they can realistically contribute, how much they expect their kids to contribute and what options are available if they haven’t saved enough.”
Beig shares three smart ways to help fund post-secondary education and avoid excessive student debt.
RESP: One of the best ways to save for post-secondary education is by taking advantage of a registered education savings plan or RESP. RESPs allow savings to grow tax-deferred, and earnings, when withdrawn for education purposes, are taxed at the student’s tax rate. Government grants are also available to increase savings.
Scholarships, Bursaries and Grants: Once you know how much you will be able to save and how much you need, the first place to look for additional funding is through scholarships, bursaries and grants. Research what’s available well in advance.
Summer/Part-Time Job: Encouraging your child to get a summer or part-time job can help build additional funds for post-secondary education, while helping students gain valuable skills and experience.
For those still facing a financial gap between what they have saved and the costs of post-secondary education, a student line of credit can help ensure students have access to money to cover tuition, books or living expenses, adds Beig.
“While graduating with debt may be unavoidable for many students, some options are better than others when it comes to financing post-secondary education,” says Beig. “A student line of credit provides a more cost-effective option than a loan or credit card as it offers a lower interest rate and more flexible repayment terms. The key is to use it responsibly to avoid drawing down funds for expenses that aren’t really necessary.”
Setting your kids free from debt
“A good financial plan should not only include helping your child save and pay for post-secondary education, but should also focus on managing debt after graduation,” says Beig. To help pay off student debt and get back on track financially, Beig provides these tips for graduating students:
Meet with a financial advisor to create a plan to manage your student debt, regardless of your income.
Protect your credit rating by always making debt payments by the due date and paying at least the minimum amount. Use a pre-authorized payment plan to ensure payments are never missed.
Pay down your debts as fast as you can. Focus on higher interest debt first, like credit cards.