No RESP? How to manage (and avoid) student debt

TORONTO – Students in Canada are weeks away from heading back to school. For those bound for post-secondary institutions, it can be a costly endeavour.

While there are many tips and strategies for how parents can help their children pay for higher education, that’s not an option for many families.

Parents’ retirement savings and household debt can be real obstacles to paying for an education. A poll conducted for CIBC showed that 60 per cent of Canadian parents had to use money originally intended for their retirement to pay for their kid’s education – heaping more debt onto the ever-growing pile and forcing them to delay their retirement.

“Parents want their children to have a post-secondary education and to save for a secure retirement at the same time,” said Brian Pritchard, a senior vice president for BDO Canada, which provides accounting and advisory services across the country.

There are savings options available for parents with young kids, such as RESPs and the Canadian Learning Bond. But what if you’re heading to college or university this fall without an RESP to cover tuition?

Rather than dipping into your parents’ retirement funds, Pritchard suggests students borrow the money to cover their education costs, while actively managing their debt.

Read on for strategies for paying for high education (that don’t include hitting up the bank of mom and dad).

Get a student loan

This seemingly-straightforward tip comes with a warning: Loans are not “free money” and are an expensive way to pay for higher education.

“Accepting a loan is a serious financial commitment. Students need to understand the importance of spending the money wisely while at university,” Pritchard said.

Never borrow more money than you actually need.

Parents can help their children by teaching them about loans and debt from an early age.

How student loans work depend on where you live in the country. In many cases,  to be eligible for a loan you must be a Canadian citizen and a resident of the province where the school is located, as well as able to demonstrate financial need. Find out how your province’s regulations work here.

While you’re in school you don’t have to make payments on your loans, but once you leave school, interest will start to accumulate. You’ll have six months after leaving school before you have to start making regular payments on your student loan.

Apply for grants, bursaries and scholarships

Unlike loans, which you have to pay back – often with interest, after a certain point – students don’t have to pay back money received through grants, bursaries or scholarships.

Various governments, organizations and schools offer grants. Usually, when you apply for financial assistance you’ll automatically be assessed for your eligibility for Canada Student Grants, including grants for low-income families, middle-income families, students with dependants and students with disabilities.

Canada Student Grants are available to most students, with the exception of students in Quebec, Nunavut and the Northwest Territories, which have their own separate grant programs.

There are tools available to help you search online for scholarships and other financial awards, including Scholarships Canada and Student Awards. The federal government also lists various scholarships and training programs on its website.

Thinking of becoming a cabinetmaker, landscape horticulturist, plumber or hairstylist? You may be eligible for an Apprenticeship Incentive Grant. The taxable grant is available for registered apprentices in a Red Seal trade program.

Get a j-o-b.

Once a student turns 15 or 16, he or she should have a part-time job to help save for post-secondary education, Hannah recommends. Ideally, this will not only help reduce students’ reliance on loans (or their parents) – using their own money to pay for school can encourage students to take it seriously.

“Kids need to have skin in the game when they go to school,” Hannah said.

BDO suggests students work part-time during college and university and designate a specific amount of their paycheque to paying off loans, if they have any.

If you have a part-time job while in college or university, you can start repaying your loan right away without being penalized. These payments will go against the principal of your loan, rather than the interest, which will save how much you’ll have to pay in the long run.

There are job search websites tailored specifically to students, like Talent Egg, and the government’s Young Canada Works program helps students and recent graduates find meaningful work in their field while paying off their loans.

Create a budget and a plan

Student debt is a common side effect of getting an education. According to the Canadian Federation of Students, students in Ontario and the Maritimes (the provinces with the highest debt loads) owe, on average, more than $28,000 each.

But that doesn’t mean students should just ignore the debt piling up around them.

“We’ve become really comfortable with debt,” Hannah said.

BDO suggests students use “found money” – like birthday gifts and tax refunds – to make a lump sum payment against their student loan. Budgets, they also recommend, should contain a section for loan repayment.

Students can download an interactive calculator from the federal government to help track their expenses while at school.

Take advantage of student discounts

Students receive discounts country-wide for anything from transit passes to movie tickets, bank accounts and everyday purchases (including, in some instances, boozy beverages). The Canadian Federation of Students offers a “Student Saver” card, which grants cardholders discounts anywhere from 10 to 50 per cent off at participating businesses. Research local businesses and choose ones that offer student discounts.