Posted on Wednesday April 28, 2021

How to help your children finance their education

All parents of young adults hope to see their children succeed in school. With the economic hardships caused by the pandemic and the inherent challenges of pursuing a post-secondary education, some parents are concerned. Fortunately, there are RESPs, government assistance programs and a number of financial products to help offset the high cost of education and help our young people succeed. Here's everything you need to know about the best ways to finance your children's education when they grow up.

Higher costs for post-secondary education

The school year has been full of upheaval for the student community. It's taken a lot of adjustment for our young people. Are they ready for university? Is their budget ready, too?

In New Brunswick, tuition fees have increased from $6,714 to $7,829 in four years according to data from Statistics Canada. This is significantly higher than the Canadian average. Plus this doesn't even include other expenses, such as setting up a study area and purchasing the necessary materials– costs which need to be added to tuition fees in order to create the best conditions for successful learning.

To cover all of these costs, students entering their first semester may start withdrawing money that has been deposited into their RESP by parents or other family members. But is having an RESP enough for you to be able to rest easy? For that, the amount invested has to have increased at the same rate as the cost of education...

Planning the disbursement of an RESP

Your eldest has just enrolled in university and it's time to make withdrawals. But RESP disbursements often generate a certain amount of anxiety in parents who want to do things the right way. There are a number of things to consider if you want to get the most out of your investment. How much can you withdraw? And when?

While a child is in school, you have the option of withdrawing a share of the principal, an Education Assistance Payment – called an EAP (i.e., investment earnings and grants) – or a combination of both. It's important to know that the maximum amount of the EAP for a full-time student is $5,000 for the first 13 consecutive weeks of study in their program. After that period, however, there's no limit to the amount of money you can withdraw.

To obtain an EAP, all you need to do is provide proof that your child is enrolled in an eligible post-secondary program. These programs are offered by a number of Canadian trade schools, universities and colleges.

Tips for optimal disbursement

Your capital continues to grow throughout the disbursement. It's therefore advantageous to wait as long as possible to recover it. In addition, withdrawals of your capital are not taxed, since they come from income already taxed before the investment.

Here’s a bit of very simple but very important advice: Don't forget to withdraw the money! EAPs must be used while your child is in school or within six months of the end of their education program. Unused grants must be returned to the government. So it's a good idea to withdraw them as soon as possible, especially if your child is not sure if they will complete the program. If they do, at least they will have had time to collect the grants.

A second very simple but important tip is to avoid making withdrawals prior to enrolling in a study program. If you make a withdrawal prior to enrolment, your entitlement to grants will be withdrawn and you will have to repay them. How do you know when is the right time? The educational institution will offer you the option of ordering proof of registration.

EAPs are taxable in your child's name. This means there's some tax planning involved. In other words, if your daughter withdraws a large amount at once, her annual income will increase significantly, which could affect her tax bracket.

Government student assistance programs

Has the cost of education increased more than you expected? To be successful in school, you shouldn't be under too much financial stress or have to work 20 hours per week. Unfortunately, many New Brunswick families don't have RESPs. If you run out of funds before your children finish school, do like they do and turn to government programs.

Student aid from the Canadian and New Brunswick governments provides students with low-interest financing with flexible repayment terms. The eligibility assessment process is simple: One application is all that's required for both the New Brunswick and Canadian government loans and grants. Enhanced amounts during the pandemic can approach $500 per week of study. Some universities are also offering merit scholarships to supplement the above amounts.

If you need additional options for your child, UNI offers several products specifically designed for students, such as lines of credit.

At UNI, we're familiar with managing RESPs for our members. We're here to give you step-by-step answers to all your questions about financing your children's education. And if one of your children is not yet 17 years old, take advantage of the time you have left to make one last contribution and get the Canada Education Grant. For support and information, make an appointment.