When you teach your child how to bike, you find the smoothest path for them. When you send your child off to school, you make sure they have all the supplies they need. Why not set your child up for success later in life by investing in a Registered Education Savings Plan (RESP)?
Almost 48% of Canadian parents haven’t started saving for their children’s post-secondary education.
And that could mean student debt in your children’s future, and often, a rocky start into adulthood, as student loans can take a toll on careers, families, and mental health. Student loans are a growing and serious concern in Canada. Here’s why you’ll want your child to avoid having to take out major student loans.
1. Student loans tend to add up, and up, and up...
Most student loans offer short-term gains for really long-term pains. (Ouch!) University is expensive and student loans add up quickly, leaving most students with heavy debt when they graduate. It’s obviously hard to get ahead when you begin your career carrying the debt for 4 or 5 years of education.
The Canada Student Loans Program found that the average loan balance of university student’s was $17,000 at the time of graduation. And if your child were to pay back a $17,000 student loan with 180 monthly payments (15 years) of approximately $126 each, then they would end up paying $5,827.76 in interest on the loan! That would be a whopping total of $22,827.76 paid back in loan amount.1
Plus, as tuition increases year after year, students’ debt loads are expected to increase exponentially. While student loans do offer a way to pay for university, the question is, what’s the real cost?
2. Graduating with heavy debt can take a toll
There are many reasons you don’t want your child to be saddled with debt the moment they graduate. For one, student debt often leads to less-than-ideal decisions after school. Rather than network or get a foot in the door with an entry-level position in their chosen industry, student debt forces young people to get any paying job. That can mean bartending to pay off their loans instead of, say, taking a junior marketing position or interning for a financial firm. With loans often taking a whole decade to pay off, young people with serious student debt frequently delay buying a house and starting a family. In other cases, student loans can make it difficult for young adults and young parents to make ends meet.
In many cases, student debt makes life more stressful, when it’s already stressful enough—what with trying to launch a career and all. Studies show that students who carry higher levels of debt have significantly higher levels of depression, anxiety and poor health. That’s right! Student debt can even do a number on blood pressure!
3. GPAs can take a hit when student loans are at play
Here’s what students should be worried about when they’re in college or university: their grades, their future career plans, and let’s be real—strategizing a “chance run-in” with a crush. What they shouldn’t have to worry about is how they’ll make rent next month, or how they’re going to fit in study time when they’re serving tables five times a week.
The sad reality is that students who rely solely on loans often stress about money and part-time jobs. That’s because student loans usually aren’t substantial enough to cover all living expenses.
When students take shifts at a café or movie theatre to fill the gap between their loan and their bills, that eats into their study time, and their grades can suffer. Plus, students have less time for clubs, sports and other important networking and personal growth opportunities on campus. In the worst-case scenario, they fail classes, blame themselves, and decide to drop out.
If your young scholar has worked hard enough to get to college or university, you would want them to excel. By saving for education, you’re helping to set up your child for success.
4. Student loans can discourage a young person from enrolling in post-secondary in the first place
You may figure that junior can just take out student loans when the time comes. But if that young person in your life has to take out a $20,000 loan just to cover their first year of rent and tuition, they might think it’s not worth it, and might decide to head to the workforce right away. I know what you’re thinking: Nooooo! Don’t choose a low-paying job over the opportunity to train for a lucrative and fulfilling career. But let’s face it, the young people in our lives don’t always think the way we do. So why not increase the odds that your child will attend college or university by providing the money they need to cover their tuition and more?
Enter the student loan alternative that starts your child on the right foot
Now that you understand the downside of student loans, you’re wondering, how can you help that young person in your life avoid major student loans? The answer is simple. Just do what a majority of Canadian parents do to save for their child’s education, and start an RESP.
An RESP is the best way to set up your child to excel in college or university and launch an exciting new life! Think of how liberating it will feel for both of you. Just like when you pushed your child on that two-wheeler and heard those squeals of delight!
An RESP can really add up
With an RESP, you invest over time, as your child grows, so you never have to take a big hit on your pocketbook. Instead, you can contribute every month, or add amounts as you wish.
If you invest just $208 a month from when your child is a baby and earn 5% each year, your RESP, including government grants, could be worth around $86,000 by the time junior heads off to college, university or trade school. And most of that potential growth is from investment income, so it’s oh-so important to choose your RESP wisely.
At CST Spark, for example, we rely on an age-based rebalancing strategy. We invest with the goal of maximizing growth early and preserving your gains closer to your child’s graduation. Plus, we invest the money you contribute in a mix of exchange traded funds in both global and Canadian markets with one goal in mind: that your education savings are ready when you need them.
The other growth is from government grants. The federal government matches 20% of your contributions, up to a cap of $500 per year. If you contribute $2,500 each year, you could get $7,200 per child in government grant money over the life of the plan, and potentially even more depending on your income level and province. With thousands of dollars in grant money up for grabs, and tax-sheltered growth, an RESP is a no-brainer.
Ready to start your CST Spark RESP?
Great! You can open your CST Spark RESP online, anytime. We’re a digital-first, RESP-passionate company. We’re focused on making saving for education simple and, dare we say, even fun. With our handy interactive features, you’ll be able to check in on your RESP anytime, anywhere to make sure your saving goals are on track and you’re taking full advantage of those wonderful government grants.
Years from now, when your child lands that dream job and settles into their first real home, unburdened by student loan payments, you’ll know you made the right call.
Have questions about the CST Spark RESP, or how much to invest to help your child launch their adult life debt-free? Drop us a line. We’d love to chat. As we mentioned, we’re pretty passionate about RESPs.
CST Spark Education Portfolios is only sold by Prospectus.
 The repayment schedule is based on a 15-year timeline beginning after graduation. For the purposes of this example, loan interest has been calculated for a fixed rate student loan using an interest rate of prime (2.45%) + 2% totaling 4.45%.
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