Don’t let Student Debt Crush Your Child’s Dreams

Professions

By Marjorie Cullen

We all have hopes and dreams for our children.  We hope they’ll grow into happy adults who enjoy rewarding relationships and financial security.  We hope they’ll have the career they desire and be able to buy a house and have children of their own some day, if that’s what they want.

We do our best to help them grow and develop.  We mark their progress towards that future with life’s little milestones (first word, first step, first grade, first date...) as we try to guide them through childhood into successful adulthood. 

We’re proud of the effort and enthusiasm they put into their endeavours and we help them dream.  “Will you be an astronaut when you grow up?  How about a doctor, dentist or dinosaur digger?”

We try to help our children discover and nurture their dreams and make those dreams come true. 

When you save in a Registered Education Saving Plan (RESP), you do more than put away some money for your child’s future post-secondary studies.  By saving proactively now, you help to minimize the chances their dreams will be delayed or crushed by the domino effect of excessive student debt.

The cost of tuition for college, university and other types of post-secondary education has been rising every year – and at a rate above the cost of living.1   A 2012 survey found that, 6 out of 10 students graduate from post-secondary education with debt averaging $24,600.2  These young adults, who have worked and studied hard to prepare themselves for a good career and financial success, find that achieving the milestones their parents took for granted may not be within their reach any time soon.3

Making student loan payments can make saving very difficult.  Recent surveys of post-secondary graduates with debt have found that paying off that debt creates obstacles to making grown-up dreams come true.3  Saving for retirement and/or buying their first home may be delayed.  The dream of parenthood may get put on hold and the longer they have to wait to become parents, the greater the risk that achieving that dream will be more difficult or costly.   And of course, it can be challenging to save for your own child’s education when you’re still paying for your own. 

The good news is that university graduates typically earn 50% more than other full-time workers who do not have a university degree.4  Unfortunately, graduates with big student debt are finding that they may have to make employment decisions based on how much they will get paid (so that they can make enough money to meet their loan repayment obligations), instead of working in their field of choice or in positions that would be more beneficial to their careers over the long term.5

Student debt can also have negative effects on young people while they’re still in post-secondary school.  A recent study found that for most students, paying for school is a bigger source of stress than their grades, their personal relationships and concerns about finding a job upon graduation.5

All of this creates an unpleasant compounding effect with one challenge creating more down the road - much like a set of dominos tumbling down. 

That’s why finding some money to put away into an RESP each month is so important.  Plus, the federal government (as well as several provincial governments) makes it easier to save for post-secondary education through grant programs that deposit money directly into the RESP.  In the case of the Canada Education Savings Grant or CESG, basic CESG matches 20% of the first $2,500 you contribute to your child’s RESP each year up to lifetime maximum of $7,200.  If you don’t contribute enough in a given year to receive the maximum grant, you can carry forward unused grant room until your child turns 17.

And, of course, the sooner you start, the more opportunity your money will have to grow thanks to the power of compounding investment returns.  So finding some money to put in an RESP each month, starting when your child is still quite young, can make a big difference to helping them pay for their post-secondary education and getting them off on a good footing once they graduate.

1 Tier for Two: Managing the Optics of Provincial Fee Policies, Erika Shaker and David Macdonald, Canadian Centre for Policy Alternatives and  Bank of Canada Inflation Calculator

2 Canadian University Survey Consortium 2012 Survey of Graduating Students.        

3 Average student debt difficult to pay off, delays life milestones, Aleksandra Sagan, CBC News Posted: Mar 11, 2014 and Tuition debt carried by many parents to help kids, Aleksandra Sagan, CBC News Posted: Sep 27, 2013.

4Association of Universities and Colleges of Canada (AUCC), Back to School Quick Facts, July 2014.

5 High student debt levels stress students, lead to delays in starting families; B.C. students carry more debt then others in Canada — and that affects career and family choices; By Denise Ryan, Vancouver Sun August 13, 2013