Should Parents Pay for College Tuition?

It's a pricey question. According to Stats Canada, the average tuition fees for undergraduate programs was $6,838 approximately in 2019, a 3.3% increase from the previous year.(1) Graduate programs were higher at about $7,086, a 2.4% increase since 2017. Depending on where you are in the Country plays a big determinant on how much the tuition is and in turn how much it is increasing by.

In Manitoba for example, tuition increased by 6.5% last year over 2018, whereas Alberta only saw an increase of 0.1%.(1) If pricing increases continue to follow the trend of the last five years, tuition and fees may continue to increase and that isn't even factoring in inflation.

The Return On Investment Can Be Attractive

While the price tags attached are considerable, there is an argument to be made that the price of a college education is worth it.

Consider Unemployment Rates

The average employment rate in the Canada in 2018 was 8.9 percent, while the average unemployment rate for a person with a college degree was 4.2 percent, according to Stats Canada.(2) A bachelor's degree provides an income advantage, too. The median (which is the mid-point, not the average) income for workers in the Canada without a degree earning $55,774 as men and $43,254 for women. The median income for men with bachelor's degrees, median earnings were $82,082 per year, and for women with bachelor's degrees, it was $68,342.(3) In other words, the price tag attached to a bachelor's degree could provide a lifetime income advantage of $1 million or more.(*)

There are Alternatives to a Four-year College

Of course, there is no guarantee a child will realize unemployment or income advantages, and college isn't for everyone. When a child is not a passionate student, has little interest in additional schooling, or does not succeed in college, then skilled trades may be an option. As the Baby Boom generation retires, a shortage of skilled workers has emerged, and it's costing American businesses billions of dollars. Generally, skilled trades require fewer years of college or trade school and education alternatives - union and non-union apprenticeships, mentorships, or manufacturing-company training programs - may be available. Typically, skilled trade jobs pay well. Just think about the last time you wrote a check for plumbing, construction, or electrical work around your home.

Sometimes, students with a passion for learning choose to pursue a dream rather than go to college. Who should pay the bill? This is a difficult question. The typical family pays for University by combining scholarships and grants, personal income, savings, and loans. Often, the solution a particular family adopts is determined by its financial circumstances, values, and philosophy about raising children.

Here are Broad Descriptions of Three Basic Options for Parents:

Parents Pay All College Costs

If you want to pay for college, you'll need to start saving early and save for other financial goals at the same time. Sometimes, parents skimp on retirement savings to put more toward college. Many financial planners disagree with this choice because, as Time.com recently wrote, "you and your child can borrow for college, while nobody lends for retirement."(4) Registered Education Savings Plans offer tax-advantages to parents and grandparents who are tucking money away for a child's college costs.

Parents Pay a Portion of College Costs

College cost sharing can be structured in a variety of ways. The variation chosen should suit the family. For instance, some parents may agree to pay tuition while children pay living expenses. Alternatively, parents may pay what they can afford from income and savings (without borrowing) and students are responsible for the remainder of the costs, even if students are required to borrow. Another way to divide expenses is for parents to pay for undergraduate degrees, while children are responsible for graduate degrees. There are myriad variations on this theme.

Children Pay All College Costs

Some parents do not have the means to pay for college. Others believe in tough love or expect their children to "pull themselves up by their bootstraps. No matter the reason, the student may benefit by declaring themselves financially independent from their parents, which may help them qualify for additional aid. Sometimes, parents who require children to fund college pay off student loans as a graduation gift. As long as the amount is lower than the annual exclusion amount, gift taxes should not be triggered. Check with your tax advisor before taking any action.

If you would like to discuss saving and paying for college or trade school, give us a call. We're happy to talk with you.

- Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

*Assumes full time work, 52 weeks a year, from age 25 to age 67. Or, 2,184 weeks of full-time work in a lifetime.

Sources:

1. https://www150.statcan.gc.ca/n1/daily-quotidien/180905/dq180905b-eng.htm

2. https://www.cbc.ca/news/business/university-grad-job-prospects-canada-1.5183295

3. https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016024/98-200-x2016024-eng.cfm

4. http://time.com/money/collection-post/2802164/saving-for-college-vs-retirement/