Paying for your child’s university

Should you pay for your child’s university education? If you have the resources to do so, many parents simply assume that it’s the right thing to do. But it may not be that simple.

Is simply paying outright for their education the best method? What will it teach them about financial responsibility? Will they take their courses seriously if they’re not footing the bill or will they just do the bare minimum to get by and party the rest of the time?

University should be partly about getting out into the world, having some fun and earning some valuable social skills but the financial aspects should not be too easily ignored. The cost itself can be pretty staggering. The average four year degree program including books and living expenses will run close to $100,000 right now if you’re not living at home. For a child born in 2013, this cost will climb to around $140,000 by the time they’re ready to start their post-secondary educations.

But what if you have the funds available? Let’s say you saved diligently in your RESP plan and have enough money set aside or if you simply have the disposable income on hand to foot the bill? Paying your child’s full way still might not be the simple solution.

Whether you have the funds or not, that degree is going to cost a fair bit of money and your child should be taught to understand the significance of the investment you’re making in them. So what should you do?

One option that I particularly like is to have your child take out student loans, even if you have the funds available. Their student loans will attract no interest until after they’re done their program and they can be paid back in full at any time. Not only that, you can hold onto the RESP or investment funds for four more years and can earn some extra growth during that time. RESP money can be drawn out of the plan while they go to school but can be reinvested in a TFSA or other non-registered plan to keep growing.

But here’s where the financial education part comes in. Sit down with your child and discuss the terms for using the education money you’ve set aside to pay off the loans. This might be as simple as saying that you’ll pay the loans off in full once they earn their degree but if they drop out part way through, the loans are theirs to pay back. Or you might base the loan repayment on the marks that they attain as well. If they achieve a 4.0 GPA, you’ll pay off 100 per cent of their debt. A 3.5 or higher might warrant a 90 per cent loan repayment and so on.

The terms that you settle on are up to you but some variation of this suggested structure would go a long way in teaching your child financial responsibility and help to ensure that they take their course load seriously.

For those parents fortunate enough to be in a position to pay for their child’s education, take some time to think about exactly how you want that process to play out. Simply paying their education costs as they come up may not be the best course of action but having a well thought out plan is.