If there’s a student debt problem in Canada, don’t blame parents.
Postsecondary tuition fees have generally been rising faster than inflation in recent years, and the average grad who borrowed owes roughly $26,000 to $28,000. That’s a big load to carry in a world where full-time career-starting jobs can be hard to find.
Curious how families are handling the cost of college and university, I asked subscribers to Carrick on Money, my twice-weekly e-mail newsletter, to tell me their approach. More than 300 people e-mailed their responses. Even more striking than the quantity of responses was the consensus that parents should pay and students should help.
Only about one in 10 paid the full cost of a postsecondary degree and not a single response argued for students to pay their own way without parental help. You never see this level of consensus in personal finance, a field that attracts contrarians like no other.
Statistics Canada says the average undergraduate university tuition is $6,463 for the 2019/20 academic year, which means a four-year degree would cost $30,000 or more if you included the cost of books and materials. Attending a school out of town might cost $80,000 or more.
It’s pretty standard for the newsletter readers who responded to my question to have used registered education savings plans, or RESPs. The big draw with RESPs is that the federal government will match contributions by parents or other family members with a 20-per-cent grant that tops out at $500 a year and $7,200 lifetime. Several parents said their motivation for using RESPs was that their children not struggle as much as they did to cover the cost of a postsecondary education.
Regardless of how much the RESPs they contributed to were worth, the majority of parents I heard from asked their children to kick in some money for college or university. Phrases like “having skin in the game” and “shared responsibility” were used.
Some parents said they’d cover tuition and books, and asked their children to pay other costs. Others asked for a share of their children’s summer or part-time earnings and combined that with RESP money.
Another noteworthy variation was to pay the full freight for a student’s first year so he or she can acclimatize, and then pay strictly for tuition thereafter. One more approach was to cover one-third of postsecondary costs, have the children contribute another third and rely on student loans for the remainder.
Among parents of teens, there’s a philosophical dividing line between those who pay the cost of cellphone plans and car insurance for their teenagers and those who have their children pay their own way. Bear in mind that a teenager paying for cellphones and car insurance may not have much left over to put away for college or university.
Attitudes toward going away to school versus staying home varied a lot among parents. Some families put a big emphasis on going away to school and are thus prepared for the significant extra cost. Others made it clear that there was sufficient funds for a university or college in town. Note: Some parents lamented the fact that the nearest colleges and universities were too far away for their children to live at home.
The high average level of student debt for grads tells us that, even with parental help and their own earnings, many students still cannot cover all their costs. Here we have a non-monetary opportunity for parents to help children who will be using student loans.
Borrowing to take a program that offers solid potential for work is a great investment – maybe the all-time best form of debt. The opposite kind of debt is built up paying for postsecondary programs that lead to employment dead ends. We need more conversations about the economic benefits of various programs when 18-year-olds plan their university or college curriculum.
One last thought based on all those e-mails from parents: Be sure to check out all available co-op programs, and scholarships and bursaries. Plenty of families got some financial help that way.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, November 19, 2019