1 Planning Finances for Post-Secondary EducationPrepared by Proliteracy.ca @ProliteracyCa This is a presentation created by Proliteracy.ca aimed at educating high-school students between grade 10 to 12 in Canada. Teachers can use this presentation to deliver their own lessons at no cost. Proliteracy.ca is an online platform that helps students and parents plan finances for post-secondary education. Our mission is to promote financial literacy with data driven technology. If you find this presentation helpful, please share with people in your network!
2 Choosing your career There is no magic formula, but consider:Your passion (love what you do, do what you love) Life style Job market trends Cost and length of studies The job market is becoming incredibly competitive, many jobs require a college or university degree While we do encourage the pursuit of post-secondary education, it is not the only path to a fulfilling career We encourage an interactive lesson where students participate in discussions along the way. Most students are more concerned about their eventual career path as opposed to financing post-secondary education. We should start by discussing career options then move into finances as an enabler for post-secondary education. We do want to emphasize that there are many forms of post-secondary education: university, college, trades and apprenticeship. There is no right or wrong choice. Ask students what they want to be, and discuss the criteria that go with their choices.
3 The reality – money mattersPost-secondary education has become incredibly expensive Estimated tuition of 4 year academic program at a major university in Toronto* Enrollment Year 2011 2016 Engineering $38,220 $49,560 Business & Public Administration $32,920 $41,180 Physical & Life Sciences $26,560 $32,940 Education $22,300 $25,880 Humanities $21,160 $24,620 Ask if the students realize how expensive post-secondary education has become. Take a university in Toronto as an example. Students shouldn’t be discouraged from pursuing post-secondary education, but we need to be conscious of the facts and prepare in advance. Also, this promotes empathy for what many Canadian families are going through. * Canadian Open Data – Stats Canada
4 The reality – money mattersStudying away from home? You need to pay rent! Estimated rent for modest bachelor apartment for 4 academic years at major Canadian cities* Enrollment Year 2011 2016 Toronto $26,304 $30,112 Vancouver $26,944 $30,016 Calgary $22,656 $28,960 Edmonton $22,816 $27,872 If you are studying away from home, room and board becomes a big cost component as well. Living at home is attractive from many perspectives, but there are many other criteria that go towards choosing the city you study in. The school, the local job market, personal aspirations etc. Note that on-campus accommodation and rent for modest bachelor apartment are roughly in the same range. * Canadian Open Data – Stats Canada
5 Cost of post-secondary educationBut wait. It’s more than just tuition, they all add up Tuition Room and board Living expenses School supplies Post-secondary education is more than just about tuition. Rent (including accommodations at on-campus residences), living expenses, cost of supplies are going up every year. Tuition is a big component of the cost, and tuition is rising at a rate past inflation every year. Explain briefly what inflation is if students don’t understand. In basic terms it’s the steady increase of the general prices of goods and services, and the devaluation of the dollar.
6 Meet Joe, a grade 12 student with great aspirationsWants to be a civil engineer and design roads for the city Accepted into an engineering program at a major university Starting his first year in September 2016 The cost of post-secondary education depends on your personal situation and aspirations. It’s different for everyone. Let’s use a generic example to highlight the cost of post-secondary education. We will focus on college / university in this scenario.
7 Joe’s tuition for a 4 year programEngineering tuition at major university in Toronto in 2016 for 4 academic years: $50,000 Annual rate of increase of 7% Amongst the major universities in Ontario, the average annual increase rate of tuition is about 7%. Here the teacher may want to talk about his/her own situation. How much did it cost to obtain an education degree in the past versus now?
8 Room and board Rent in the city for 4 academic year is roughly $30,000On campus residence costs roughly the same Joe decided to live at home! Although not increasing as rapidly as tuition, rental cost has been steadily rising as well, especially in major Canadian cities. If you are studying away from home, this will be a major part of the overall cost. Living at home has many perks. In most cases, you don’t pay rent, and mom does cooking and laundry (a joke - almost). Ask the students if they are planning to study away from home.
9 Other Expenses Books Food Transportation EntertainmentRoughly $30,000 for 4 academic years Of course there are other expenses like school supplies, food, and transportation. How do we reduce cost here? Do the students have suggestions? Used books – many used books are in pristine condition, and many text books are used for a few months and never opened again Used computer equipment Cook your own meals, or maximize use of your meal plan instead of eating out
10 Total cost for 4 years of studiesTuition $50,000 Room & Board $0 (living at home) Expenses $30,000 Total $80,000 Yes, it adds up pretty quickly. Keep in mind that the total can vary greatly in either direction depending on where you study and what you study. This is just an example. If you are looking years into the future, the total cost becomes even higher.
11 Putting it into PerspectiveJoe’s father has an annual salary of $50,000 After tax income is $41,429 Assuming Joe’s father can save $4,143 or 10% of his income each year $80,000 translates to 19 years of savings But what does $80,000 really mean? Assume Joe’s father is the only source of income for the family. This translates into many, many hours of work. Since Joe’s salary is also spent towards paying off a mortgage, paying for food and utilities, the amount of excess income Joe has may be limited. So, it can actually take an extremely long time to save up $80,000 for something like post-secondary education.
12 Fortunately, many forms of financial assistance are availableLet’s start with the cheapest sources of funding.
13 Start planning early Start with the cheapest form of fundingSavings Government Grants Scholarships Family (pledges & trust funds) Wages from part-time / summer jobs When additional funding is required Government loans Student line of credit Ask the students why savings are cheap and loans are expensive. Savings earn you interest, but loans makes you pay interest.
14 Savings – it’s your own money, and there are ways to make it grow without risks
15 Savings - RESPs An RESP is like a piggy bank, but with perksGovernment put money into it! It grows on its own if you invest wisely Tax incentives No reason to not open an RESP account $50 monthly contribution over 18 years yields about $15,000* Gains and government contributions are taxed in the hands of the student An RESP is a savings vehicle available at the banks and many financial institutions. One of the biggest benefits of having an RESP account is that the government makes contributions to it, and it becomes your money. Money in an RESP can be invested in different ways. For example you can invest the money in Guaranteed Investment Certificates (GIC’s) to give you a guarantee rate of return. Tax incentives – this gets a bit complicated, it’s up to the teacher on whether to discuss tax incentives in details. In general, contributions to RESP do not reduce taxable income, but capital gains are tax sheltered. Taxes are applied on withdrawal in the child’s hands and are typically much lower. More advance topics: Upon student entering college, there is a $5,000 withdrawal limit in the first 13 weeks. No limit after that. * Assuming 1.5% annual interest & CESG Grant
16 RESP Grants at a glance Grants for all CanadiansGrants based on family income level Grants for specific provinces Canadian Education Savings Grant (CESG) – Government matches 20% of your annual contribution up to a maximum of $500 Canada Learning Bond (CLB) – Government contributes $500 when opening an RESP account with an additional $100 contribution up to age 15 Additional CESG – another 10% or 20% of annual contribution matching based on family income level British Columbia Training and Education Savings Grant (BCTESG) - Government contributes $1,200 when child turns 6 Saskatchewan Advantage Grant for Education Savings (SAGES) – Additional 10% annual contribution matching up to $250 Quebec Education Savings Incentives (QESI) – Additional 10% annual contribution matching up to $250 per year Grants are available with your RESP. Make sure you know what they are. It’s free money. Take advantage of them!
17 $50 monthly contribution over 18 yearsA visual example based on grants and compounding interest. In savings, interest is money you earn for setting money aside at a bank. The interest is typically a small percentage of your contribution. Briefly describe what compound interest is. Basically, the interest you earned is deposited back into your account so that the interest in turn accrues more interest. At the teacher’s discretion, we can go into the concepts of principal, interest and amortization, but we don’t think it’s necessary here. * Assuming 1.5% annual interest & CESG Grant
18 Grants and Scholarships – free money, you just have to look for the right ones and applyMillions of dollars worth of scholarship go unclaimed each year (over $3.5 million). People simply don’t know about them.
19 Government Grants – outside of RESPGovernment grants vary by provinces, make sure you understand yours! Ontario offers 30% off tuition with OSAP (up to certain amount) for most families (ending in 2017) Federal grants for low income / middle income families (income category depends on family size, province and family income) Students with dependents Students with disabilities Grants in our context refer to money that the government awards to students based on certain criteria.
20 Ontario Student Grant Effective commencing in the 2017 academic yearMajority of families with less than $50,000 annual income will receive grants in excess of average tuition Additional financial coverage for families in general Student is expected to contribute $3,000 to their education each year, through savings or employment income OSG was announced on February 25th 2016, with the launch of the Ontario provincial budget. OSG is proposed to be effective starting in the 2017 academic year. The OSG is possible through consolidation of financial aids that are available but could easily be missed by students. Also, the new grant eliminates many of the barriers that were placed in front of mature students. The new plan eliminates previous grant qualifiers, such as; limits on time out of high school. They are also reducing the amount that a mature student’s spouse is expected to contribute. These changes will increase educational accessibility for older students.
21 Ontario Student Grant – two examplesTwo scenarios highlighting Ontario Student Grant. A student going to college with family income of $40,000 will receive a grant of $5,300+, which is above the average college tuition of $2,768 A student going to an Arts & Science university with family income of $80,000 will receive a grant of $6,000+, which is close to the average university tuition of $6,160 * Ontario Ministry of Finance
22 Ontario Student Grant Replaces existing grants and tax incentivesThe Ontario Student Grant is a new way to distribute government funding – there is no indication of increased budget Grants and tax incentives that are being replaced: Ontario 30% off tuition grant Ontario Access Grant Ontario Child Care Bursary Ontario Student Opportunity Grant Ontario Distant Grant Ontario Tuition and Education tax credits Federal Education and Textbook tax credits Grants in our context refer to money that the government awards to students based on certain criteria.
23 Grants & Scholarships Grants and scholarships are not just for student with good grades There are many forms of scholarships not just from the government, but from schools and commercial & non-profit organizations Academic Community involvement Arts Writing Sports Financial need and many more… There is a general misconception that scholarships are only awarded for academic achievements. This is simply not the case. Some scholarships have very minimal requirements, and you just have to apply!
24 Funds from family Are there members from you extended family who can make pledges towards your education? You can offer to pay them back when you get a job. Grandparents? Aunts and uncles? Other types of savings? Some families have trust funds specifically for post-secondary education This may not be for everyone, but worth thinking about We acknowledge that this option may not be available to many people, but it’s still worth bringing up.
25 Part time and summer jobsMany college students work part time or during the summer to help pay for school The money aside, you get on-the-job training and experience that help jump start your career Organizations are incentivized through tax credits to hire college students Smart students are highly productive You have a lot to offer to employers! Part time and summer jobs prepare you for the job market. Many universities now require students to find internships to graduate from an academic program. Summer students are awesome. Many employers find immense productivity with summer students, they are energetic and they bring fresh ideas. Employers also get tax credits for hiring students – in other words they pay less taxes for hiring students. So do yourself and companies out there a favor and consider getting a summer job.
26 Loans – Money you borrow and pay back in the futureLoans are the most expensive option. Unlike savings where interest is money the bank pays you, interest in the context of a loan is money you pay the bank.
27 The funny thing about interest$$$ you earn RESP Interest You Bank It’s important to note that the word interest means different things depending on context. In the context of RESP, interest is the money you earn for setting money aside. In the context of a loan, interest is the money you pay for borrowing money. $$$ you pay Loan Interest
28 Loans Loans are expensive, because you have to pay them back with interest The average university student graduates with $28,000 in student loans* The average Canadian takes 9.5 years to pay back student loans Loans are available from the government (i.e. OSAP) or from financial institutions The balance of student loans in Canada increases significantly every year. About 60% of post-secondary education students in Canada require some form of a loan. Taking out a loan introduces debt, and debt must be managed responsibly. As a start, don’t take on debt unless you have to. When you have to, take only as much as you need. Post-secondary education in one case where it makes sense. Another scenario may be taking on debt to buy a home (mortgage). * Canadian Federation of Students
29 Government Loan vs Commercial LoanCommercial Student Line of Credit (Loan) No payment during school Interest only payments during school 6 month grace period following graduation - interest is accumulated on federal portion of loan 12 month grace period following graduation - You continue to pay interest Mostly variable interest rate (Prime rate + x %) Mostly variable interest rate, sometimes more favorable rates Repayment assistance programs available Less flexible repayment options Interest payments are tax deductible No tax incentives What are the key differences between government loans and commercial loans? Or the other way around? Government loans – you don’t pay a cent until 6 months after graduation. Offers more options for delayed payment in special circumstances. Won’t cover full post-secondary costs in most circumstances. Commercial student line of credit - sometimes available at lower interest rates and higher amounts. Discuss fixed interest rates vs variable interest rate at your discretion. A fixed rate is an interest rate that applies until the loan is paid back in full. A variable rate fluctuates with the market and is typically based on prime rate. There is no definite answer with regards to whether fixed or variable rate is better. Explain what the prime rate is. Basically, the prime rate is a reference interest rate defined by the banks, and is typically the lowest rate they can offer to lend money for. Prime rate changes a number of times each year. In 2016, the prime rate is about 2.7%. Student loans are typically offered at prime plus a certain percentage
30 Implication of debt Loans don’t just go awayAll loans come with interest Loans have a maximum pay back period or minimum payments The longer you wait to pay back, the more money you owe Having a healthy level of debt and paying them off responsibly improve your credit rating You have to repay loans. There are some extraordinary circumstances where you can reduce the money you have to pay back, but that rarely happens. In most cases, reducing debt as fast as you can is a good idea.
31 Loan of $20,000 You have a student loan balance of $20,000 when you graduate from college Assuming you pay back $2,700 a year 5.0% interest rate The loan will take roughly 10 years to pay back Note that your total payment is $27,000 – that’s how loans work An example. The moral of the story is, you pay back more money that you borrow. The sooner you pay back your loan, the less money you end up paying. But this may not always be realistic as you need cash to live!
32 In summary Get a reasonable estimate on how much post-secondary education will cost in your situation Start planning early Start with the cheapest financing options like savings Do your homework and understand what grants and scholarships are available If you need to take out a loan, seek to understand the terms of your loan and determine the impact of debt In summary, everyone is different, and so are their personal financial situations. Regardless, it’s important to understand the cost and how you are planning to pay for it. It’s a balancing act, ask yourself if there are ways to reduce cost and increase funding.
33 Where to get help It’s OK to talk about personal financeIf you don’t understand, ask! School teachers and counselors Family Friends Online resources Ask students what resources they rely on today, or do they even think about personal finance at all?
34 Classroom Exercise
35 Classroom Exercise Go to http://proliteracy.caClick on “Estimate Cost and Start Planning” Create your profile and follow on-screen instructions to see costs related to your own scenario Create an account to learn about financing options like RESP, grants, scholarships and loans
36 Classroom Exercise How do you feel about your personal situation?Discuss ways to reduce costs Discuss ways to finance post-secondary education
37 Disclaimer The materials contained in this presentation do not claim to be or constitute legal or other professional advice and shall not be relied upon as such. We take reasonable measure to ensure the information is current and accurate for its intended use, but we do not warrant the information’s accuracy, completeness or usefulness. The data and estimates provided on this site are for reference purposes and should be consumed based on your discretion and best judgement.