As costs soar, financing a degree takes careful planning
As governments scale back their funding to higher education, an immense financial burden is falling onto the shoulders of students and their parents. Investment management company Trimark estimates that this year undergraduates can expect to pay $8,890 for one year of undergraduate studies. But the Canadian Federa-
ffJL JL. tion of Students warns that, depending on a school s location and fees, the actual cost is $15,690 a year, a figure that includes all living expenses as well as a computer. “More than ever, says federation chairman Brad Lavigne, “getting into the system de pends not just on ability, but on how much money a person has."
And the situation is going to get worse. By the time a child born today attends a Canadian university in 2015, experts estimate, the cost of a four-year degree—including fees, books, transportation and accommodation—could easily approach $150,000. Tuition alone, ranging from a low of $1,663 a year at Concordia in Montreal to a high of $3,855 at Acadia in Wolfville, N.S., has jumped 150 per cent over the past decade. And given that university revenues fell another 1.7 per cent last year— despite tuition hikes of 11 per cent—it is unlikely that fees will go anywhere but up. “Obviously, no one knows exactly what the numbers are going to be, says Elizabeth Hoyle, vicepresident of marketing at Trimark. “But based on trends over the past few years, it will be expensive.”
Apart from personal resources and part-time work, how is a parent or student best advised to prepare for affording those bills? Maclean’s has explored three different stages of preparation, from the investment options such as registered education savings plans (RESPs) through to the earning of scholarships and the securing of student loans. A survey:
Like most parents, Beatriz Janicki wants to give her children the best things in life. But when she had her first child, Malcolm, 10 years ago, saving money for his tuition never entered her mind. “I came from a family that didn’t do anything like this,” says the 33-year-old Toronto dental technologist. But shortly after giving birth to her second child, Jake-Vidal, two months ago, Janicki got a call from a private company asking if she would like to set up a university or college savings plan. Armed with a stack of pamphlets from lending institutions and investment companies, Janicki is currently weighing her options. “You really have to read the fine print,” she adds. “In a couple of months, I’ll decide whether I want an RESP or an in-trust account.”
Such investment vehicles are not new. But recent federal tax changes have made them increasingly popular with people who have a few years to save. In the past year alone, companies like Trimark Investment Management, Altamira Investment Services and Royal Trust have seen their RESPs and in-trust accounts increase by as much as 35 per cent. Each option has its own set of risks and advantages.
RESPs: Available since the 1960s,
RESPs have skyrocketed in popularity as a result of increased flexibility. This year, the federal government doubled the annual contribution limit to $4,000 per child, to a maximum of $42,000. And, in the event that the child does not pursue a postsecondary education, parents can now transfer unused RESP income into their registered retirement savings plans, should they have room. They can also name several beneficiaries, and apply the fund to a wider range of education expenses, such as short-term courses. Trimark’s Hoyle calculates that $100 a month, invested in an equity mutual fund that returnslO per cent for 18 years, should grow to almost $67,000. A lump sum of $10,500 could net the same return with the same assumptions.
Not surprisingly, the maximum benefits of RESPs are reaped by those who start saving while future students are still very young. Although there are no tax deductions for contributions to an RESP, the funds grow tax-free until the child attends university or college. Although students are taxed when they eventually withdraw the money, most are in a lowor no-tax bracket while at school.
Once the decision has been made to put money into an RESP account, the challenge is determining which investments best suit personal circumstances. In the child’s early years, a parent can usually afford to endure the volatility of mutual funds, which are designed for greater long-term returns. But as the child gets closer to university age, the experts say it is usually wise to invest in more secure, but lower-yielding products such as Canada Savings Bonds and guaranteed investment certificates.
In-trust Accounts: The investment accounts are not necessarily designed for education purposes alone and are set up and held in trust by an individual for a child. Unlike an RESP, there is no tax deferral on income earned: the parent or guardian who made the deposit will be taxed annually on the interest or dividends. But if the account is designed to provide capital gains, the resulting taxes are paid by the child, who will likely have little or no tax to pay. And unlike RESPs, there are no annual or maximum contribution limits. When the child turns 18, any money invested in trust becomes the property of that person. And unlike an RESP the money can be used in any way the beneficiary sees fit.
If 18-year-old Andrew Mark Waugh became prime minister, he would “ensure a high standard of living, maintain or strengthen the social safety net, and keep Canada united for all future generations of Canadians to enjoy.” Those thoughts, part of a 1,500-word essay, helped the second-year student at Mount Allison University in Sackville, N.B., clinch a $5,000 Magna For Canada Scholarship Award last summer—his third major scholastic award in less than two years. “I was absolutely ecstatic,” says Waugh, whose résumé also includes a $1,000 Mount Allison General Entrance Scholarship, and a $1,000 Herbert S. Sharpe Scholarship awarded by the United Church of Canada. But the Magna scholarship was by far the toughest to land. As well as crafting the essay, Waugh, a native of Fall River, N.S., had to submit his academic transcripts to show he was a serious student, provide a lengthy description of his extracurricular activities and volunteer work, and make a presentation to a panel of six judges. “It takes a lot of time and preparation,” says Waugh of the chase for scholarship dollars, “but, who knows? It might just pay off.”
The fight for a good scholarship can be extremely competitive: close to 400 stu-
dents applied for one national and 10 re-
gional Magna scholarships last year. But 5 more awards have become available in I the past few years, and students do not Ü always need high marks to win one. § Michael Howell, assistant head of special Í education at Sutton District High School, I 80 km north of Toronto and author of the I Winning Scholarships series of books, esI timates that the number of students re♥^ ceiving scholarships and bursaries has § edged up from one in 10 to one in eight ° in the past decade. “There is a greater
sense of commitment to help students in I need,” says Howell, “and that includes the private sector”
Most awards are typically worth between $500 and $2,000. A j handful of mega-scholarships, including the coveted Canada Trust ; Scholarships for Outstanding Community Leadership, and those j awarded by the Women in Engineering and Science Program of I the National Research Council, top $35,000 over three years. Some j are open to everyone; others are more restricted. The $8,000 Cana; dian Figure Skating Association Athlete Trust Scholarships are I open only to skaters who have won a gold medal at a qualifying j event for the Canadian Championships. Howell advises students to I look everywhere in the hunt for money, including local churches, service clubs and parents’ employers and unions. And above all, he encourages students to better their chances by taking part in extracurricular activities and community service from the day they begin Grade 9.
But the biggest source of scholarships and bursaries remains universities themselves. In fact, according to Statistics Canada, universities increased spending on awards by 4.3 per cent in 1996. This year, Queen’s University in Kingston, Ont., increased the number of its prestigious Chancellor’s Scholarships, worth $26,000 over four years, from nine to 40. The University of Alberta’s recruitment scholarship fund has almost tripled in three years to $1.9 million.
Simon Fraser University in Burnaby, B.C., has upped its budget for scholarships, awards and bursaries by $700,000 over the past five years, bringing the total to $3.2 million. Among the recipients is Jonathan Tang, 20, of North Vancouver. In securing his $25,000 Alumni Leadership Scholarship, Tang impressed officials with his history of volunteering at a senior citizens home, a children’s recreation centre, and his church. “It’s important to get involved,” says Tang. “I’ve gotten a lot from being with other people in different situations.”
Even as provinces have allowed tuition to climb dramatically, some have worked to ensure students a greater chance at scholarship dollars. Ontario allowed universities to hike tuition 10 per cent this year—but also required them to set aside 30 per cent of that hike for student awards. And in the spring of 1996, the province created the Ontario Student Opportunity Trust Fund. For 11 months, the government matched every dollar that universities and colleges raised for student bursaries. In total, that increased the size of scholarship endowments across the province by almost half a billion dollars. Already, the purse strings appear to be loosening on Ontario campuses. Starting this fall, Laurentian University in Sudbury began awarding $1,000 to all first-year students with an average above 80 per cent, and $2,500 to those with more than 90 per cent.
Ottawa, meanwhile, is promising to do its bit to help those who need it most—although not until the year 2000. In September, Prime Minister Jean Chrétien announced the creation of a new $1billion trust for the Millennium Scholarship Endowment Fund. The interest earned will create new student awards. Experts predict that the fund could provide a total of $70 million a year in assistance to as many as 70,000 students.
A STUDENT’S SAMPLER
The following are just a few of the hundreds of entrance scholarships available to Canadian students.
CANADA TRUST SCHOLARSHIPS FOR OUTSTANDING COMMUNITY LEADERSHIP
Canada Trust Scholarship Program 1200 Bay St., Suite 300 Toronto, Ont. M5R 2A5 Value: $14,000, plus four years’ tuition and summer employment. Candidates must demonstrate a record of leadership and community service.
CANADIAN MERIT SCHOLARSHIP FOUNDATION AWARDS
Canadian Merit Scholarship Foundation RR 1, Wellington, Ont. KOK 3L0 Value: $13,000, plus four years of tuition.
Candidates must demonstrate a record of leadership and community service.
Terry Fox Humanitarian Award Program Simon Fraser University Burnaby, B.C. V5A 1S6 Value: $16,000 over four years. Candidates must be involved in community service and have shown courage in overcoming a personal obstacle.
WOMEN IN ENGINEERING AND SCIENCE PROGRAM
WES Co-ordinator National Research Council Ottawa, Ont. K1A 0R6 Value: approximately $35,000 over three years (includes summer employment). Open to first-year women university students studying mathematics, physics or engineering.
James Martindale has a typically bleak story. After getting a BA in political science at Simon Fraser University in 1994, and a certificate in journalism at Vancouver’s Langara College one year later, Martindale graduated with $30,000 in debt to both the province and Ottawa. Unable to find work in his field, he took a variety of jobs, at one point launching his own desktop publishing business. When that failed, he went to work at Electric Zoo, a business services shop where he is making $1,000 a month—barely above the poverty line as defined by Statistics Canada. Since last year, he has been paying $110 a month towards his $10,000 debt to the province of British Columbia. And in January, he is expected to start handing over another $375 monthly on his $20,000 Canada Student Loan. “Unless some thing drastically changes between now and then, I really can’t afford to pay it,” says Martindale. “I did all the right things. Was the big education worth it? Now that I’m in debt up to my ass, I’m not so sure.”
This year, an estimated 385,000 postsecondary students— roughly 60 per cent—will rely on the Canada Student Loans Program to help finance their degrees. “We are regularly seeing students graduating with debts of $25,000 to $30,000,” says Barb Godin, senior vice-president of retail lending at The Bank of Nova Scotia. And while most graduates are able to repay their debts, the number of Canada Student Loan recipients declaring bankruptcy has risen more than 700 per cent in the past 10 years. In 1996, 11,965 students took that option. Many of those who choose to chip away at their debt are, like Martindale, making personal sacrifices, moving home with parents or taking low-paying, dead-end jobs.
In fact, due to rising bankruptcy claims among graduates, the Canadian Imperial Bank of Commerce decided in June to pull out of the Nova Scotia provincial student aid plan. And the bank has not ruled out doing the same in Manitoba when its contract is up later this year. The reason, says Sandra Ferguson, CIBC’s vice-president of student product management: “We’re not breaking even.” As well, she added that their original goal of creating good relations with future clients was being sabotaged by a loan system that is simply not working.
On Nov. 17 and 18 in Ottawa, officials from the federal and provincial governments were to meet with lenders, university officials and student groups to discuss ways to improve student loan programs. Suggestions include increasing the number of government grants—only 1,700 students now receive them—along with introducing federal loan forgiveness ceilings. Also on the table will be proposals for an Income Contingent Repayment Program that would link the pace of debt collection to a graduate’s income.
In the meantime, those considering student loans are advised to study up. “You wouldn’t take out a mortgage without knowing the terms,” says Ferguson. “High schools need to be involved. And parents need to take a serious role in advising students. This is truly the first big investment they will have to make.”
Government Loans: Students may apply for both federal and provincial assistance using a single application form, available at provincial student assistance offices, and university and highschool financial aid offices, by April or May each year. Loans are provided based on demonstrated need, with two main factors taken into account: the cost of studies and family and personal resources available to applicants. Students are expected to work during the four-month period before studies begin. And parents are expected to contribute to the costs of the child’s postsecondary education—unless the child has been out of high school for four years, has been in the labor force for two years, has been married or is a single parent. If a student is married, the spouse is expected to contribute as well.
RENT OR RESIDENCE?
Is it cheaper to live in residence or to rent your own apartment? Maclean’s explored the options in several cities, comparing the cost to an individual student of sharing a two-person residence room and a two-bedroom apartment for the 1996-1997 academic year. In residence, there are several meal-plan options, depending on the university: some include a set number of meals per week; others use a debit card system, allowing students a particular dollar amount of food per year. A private telephone costs extra at all universities listed. Apartment rents do not include utilities or a telephone.
University of British Columbia
$4,188 to $4,883
(meal-plan debit system)
University of Calgary
$2,998 to $4,248
(meal-plan debit system)
University of Saskatchewan
(19 meals per week)
$2,920 to $4,532
(meal-plan debit system)
University of Toronto
$4,100 to $6,227
(12 to 19 meals per week)
(15 meals per week)
University of New Brunswick
$4,360 (14 meals per week) $4,500 (19 meals per week)
(19 meals per week)
The Canada Student Loans Program meets up to 60 per cent of a student’s assessed need. The weekly limit is $165, or roughly $5,610 for an eight-month academic year. Most provinces top up that amount. (Quebec and the Northwest Territories run fully autonomous loan systems.) Students in Saskatchewan typically may borrow enough from the province to bring the total to $275 a week, making their maximum for the academic year about $9,350. As long as they are at school full time, students do not have to make payments. But interest accrues immediately upon graduation, and collection begins six months later.
Private Bank Loans: Since 1993, several banks have offered personal loans for students who do not qualify for government aid. The plans differ marginally, but generally students can borrow as much as $6,000 in each of four years—roughly the same amount as the maximum Canada Student Loan. As a rule, a cosigner is required. In addition, students have the option of taking a personal line of credit, which gives them a predetermined sum of money on reserve.
There are two critical differences between private and government loans. With the former, interest is tallied, and collected, from the time the money is received. For example, applicants who borrow $5,000 from a bank at 9.5 per cent—the rate set this past August for the current school year—will pay roughly $40 a month interest throughout the school year. Secondly, while repayment of all loans begins six months after graduation, students can apply for interest relief on federal loans for up to a total of 30 months, and between 18 and 30 months for provincial loans.
Visit the Maclean’s home page at www.macleans.ca for hot links to university sites on the World Wide Web.
In the end, despite rising tuition and escalating student debt, a university education has never been more important for securing high-paying, skilled jobs. In the year 2000, experts predict, 45 per cent of new jobs will require three to four years of postsecondary education. When getting an edge costs top dollar, planning for the future is one of the best lessons students can learn. □