Straight talk on everything Canadian parents need to know
Let’s be real — basic parenting is challenging enough. When you add in planning and saving for the high cost of post-secondary education, it can feel downright overwhelming. What are the best ways to get ahead of the curve and set your kids up for education success? Let’s break down the key topics that smart parents need to know about such as RESP, EAP, PSE, grants, bonds, scholarships, and loans — all explained in plain English.
Tuition: The Big Bad Wolf is not so scary when you have a plan
Even the most money-wise parents can’t avoid the fact that tuition today is very expensive. In Canada, the average undergrad tuition for Canadians is around $7,000 per year, a number that does not include the cost of books, housing, or other student expenses. Add it up, and you’re looking at $20,000 to $40,000 for a degree — and that’s if they don’t want to be a doctor or lawyer! But with an RESP, grants, bonds, and a bit of budgeting, you can whittle this imposing expense down to something that feels more manageable.
The RESP (Registered Education Savings Plan): Your new BFF
If you aren’t yet familiar with the RESP, now’s the time. It’s a special savings account for education through which the Canadian government helps you grow your savings via grants and bonds (more on those in a minute). You can open an RESP at most banks or credit unions, or through financial advisors. Here are two key details:
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Tax benefits: The money you put into an RESP grows tax-free until your child is ready for school. And, when they withdraw it for school, they’ll likely in a lower-end tax bracket, so they’ll pay less tax.
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Flexibility: You can name one or multiple kids as beneficiaries. And if your child doesn’t end up going to college or university, don’t worry — you have options such as transferring it to another child or rolling it into your RRSP under certain conditions.
The 2 ways for students to withdraw funds from an RESP
1. The Educational Assistance Payment (EAP)
When your child is officially a post-secondary student (full-time or part-time), they can tap into their RESP through what’s called an Educational Assistance Payment (EAP). EAPs are specifically withdrawals from the government grants, bonds, and investment growth in the RESP — not from your original contributions. Although EAPs are taxable, your child will usually pay little to no tax since students typically earn little income.
2. The Post-Secondary Education Payment (PSE)
PSE payments are withdrawals from the funds you originally contributed to the RESP. There’s no tax on these withdrawals because you’ve already paid tax on the money you put in. When your child heads off to university, you can combine PSE payments (your contributions) with EAP payments (grants, bonds, and growth) to help cover education costs.
RESP “free money”: Canadian Education Savings Grant (CESG) and Canada Learning Bond (CLB)
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With the Canadian Education Savings Grant (CESG), for every dollar you contribute to your child’s RESP, the government chips in 20 cents, up to $500 a year per child, to a lifetime maximum of $7,200. That’s the “free money” you make in an RESP just for contributing. Lower-income families might get an extra 10% to 20% on the first $500 contributed each year.
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With the Canada Learning Bond (CLB), children in lower-income families might qualify to receive up to a maximum of $2,000, with no contributions required. The first $500 is deposited automatically upon opening an RESP, and every year after that another $100 is added, if the family maintains lower-income status.
Student loans: How to be friends with them, not enemies
Most families find that even with RESPs and other savings, they need to rely on student loans to cover the education funding gap. But student loans aren’t the monsters they’re often made out to be — if you use them wisely. Here are some quick basics to keep in mind:
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Federal and provincial programs: The Canada Student Loan Program (CSLP) provides low-interest loans to students, while provinces have their own programs such as the Ontario Student Assistance Program (OSAP)
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Repayments: Students must start to repay these loans six months after they finish school; interest starts to accrue only after graduation for federal loans
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Repayment assistance: If your child is struggling to make payments, the government offers programs to help reduce or pause payments based on their income. Here you can learn more about the Repayment Assistance Plan.
OSAP: Ontario’s student lifeline
Post-secondary students who call Ontario home will almost certainly encounter OSAP — the Ontario Student Assistance Program that combines grants and loans to help students pay for school. Unlike loans, grants don’t need to be repaid. Depending on your family’s financial situation, your child could get thousands each year in OSAP assistance. Applications are available online and are user-friendly — just make sure to apply early!
Scholarships: The hidden treasure trove
Don’t ignore any opportunity for assistance! There are thousands of scholarships out there for Canadian students, big and small. Some are awarded based on grades, but many help reward community service, sports accomplishments, creativity, or even quirky talents and interests. Here’s how to make the most of scholarship opportunities:
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Start early: Encourage your child to start looking for scholarships in Grade 11. There are entire websites dedicated to helping you find matches, including ScholarshipsCanada.
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Apply often: Many scholarships actually go unawarded because no one applies! Sometimes, all it takes is a 250-word essay or submission of a simple application.
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Don’t forget local: Have a look around where you live. Community organizations, employers, and your financial institution may offer scholarships, such as Meridian’s Sean Jackson Scholarship program.
CPP survivor benefits: A safety net you should know about
If a parent passes away, children may be eligible for survivor benefits through the Canada Pension Plan (CPP) and can use them toward education. These pension benefits are available to children under 18, or between 18 and 25 if they are attending school full-time. An application is required. Explore CPP children's survivor benefits.
One last thing: Tips for success
Now that you’re up to speed on the various forms of financial assistance available for education funding, let’s conclude with some advice that can really help along the way.
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Start an RESP as early as possible — even small contributions add up, especially with government grants
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Encourage your kids to work part-time — summer jobs and co-op placements build skills and savings
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Talk about money early and often — help your child understand budgeting, debt, and financial planning
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Revisit your education savings plan each year — things change, and so should your funding strategy
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If they’re of the right age, encourage your kids to generate some income of their own with our blog post on Top 5 Side Hustles for Teenagers <link to post when live>
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Open a Meridian Youth Savings Account to introduce your child to the concepts of savings and compound interest. Learn more and apply for a Meridian Youth Savings Account.
Want additional guidance?
For tailored, personal assistance on including an education funding strategy in your overall financial plan, reach out to a Meridian associate and let’s start talking.
