Funding Your Childs Post Secondary Education
A recent article by the Globe and Mail regarding the increasing cost of Post Secondary tuition hit close to home. In the article, it is projected that a child born today going to University 18 years from now would face a cost of over $100,000 for a typical 4 year program. To add salt to the wound, the $100,000 is for a child who lives at home – it could cost over $130,000 for the students who move away.
As Baby FT was born in 2008, I assume the projections for the cost of University will be fairly close to what the article states. As we started an RESP in 2008, will it be enough to fund Post Secondary Education?
We decided to use the RESP program which allows up to 20% of your (after tax) deposit annually will be matched by the government, up to $500 per year. So to max out the government grant, $2500 would need to be deposited annually. Investments can grow tax free within the account, but withdrawals will be taxed in the hands of the student which shouldn’t be a problem as they typically make very little income at that stage.
With regards to the RESP investment strategy, we decided to with the TD e-series to index the portfolio over the next 17 years or so. The plan is to gradually reduce our equities exposure as the withdrawal period closes in. We deposit $2500 lump sum annually with the government depositing $500. This results in $3000 in new cash every year to invest with.
My assumption is that the portfolio will grow 5% annually after inflation which, after 17 years of growth, will result in a portfolio size of approximately $88,000. This is not too far off the $100k required IF our child decides to live at home during University years. If moving away is the plan, then I the difference will have to be made up somewhere. Whether it’s student part time work, student loans, or if Daddy needs to open up his wallet once again – a plan needs to be put in place.
The issue of who should pay for post secondary education is a well publicized. Some believe that post secondary education should be the child’s responsibility while others feel the bill should be covered by the parents. I’m in between the two camps. I managed to pay my way through school without student loans by working part time, choosing a degree that had paid work terms, staying at home and living frugally. However, even that (and RESP money) may not be enough in the future with rising tuition and living expenses.
My initial thoughts (which may change over the years) are that we’ll cover all education expenses, but baby FT will be responsible for living expenses. The amount that baby FT will have to come up with will depend whether or not they want to live at home. If the kid(s) decide to live away from home, then they’ll most likely need to fund their living expenses on their own (or a portion of) though part time work, loans (eligible if using RESP?), or scholarships.
Who knows, if we can ingrain a good savings habit in them early, then perhaps they’ll have some cash to cushion the blow.
What are your thoughts on the rising cost of tuition?