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A Knowledge First Financial Review of the Future State of Education Costs in Canada

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As you save for your child’s education, it’s important to factor rising education costs into your strategy. Today, we’ll take a look at expert predictions concerning these cost increases to give you a solid idea of what to expect.

How Much Will Education Costs Rise?

There are a few different costs to account for here, starting with the most obvious.

Tuition

According to Statistics Canada, tuition costs for undergraduate students (those entering an educational program after high school for the first time) rise about 3% per year on average in Canada.

That may not seem like a lot -- but if your child won’t be going to college or university for another 18 years or more, it can really add up.

The Canada Student Loans Program predicts that tuition costs (including textbooks, food, and administrative fees) will rise from the 2018/2019 average of $8,400 to a whopping $17,200 per year by the 2038-2039 school year.

Shocked? At least you know what to expect now, which is more than can be said for many Canadian parents, who underestimate tuition costs by as much as 27%.

Housing

If your child will be studying away from home, you need to factor rising housing costs into your savings plan as well. These can be drastic depending on where your child ultimately studies and if they stay on-campus or find a private residence to rent during their studies.

Year-over-year, the increase in expenses for living on-campus aren’t huge -- but, as with tuition, they add up.

Knowledge First Financial predicts that, by 2037, students staying on campus will pay an average of $30,931 in tuition and housing fees per year, up from the current yearly average of $21,041.

It’s a bit more difficult to calculate housing cost increases if your child will be renting a place off-campus.

In Ontario -- which is home to a number of Canada’s major universities and colleges -- rent increases follow yearly guidelines laid out by the Landlord and Tenant Board.

These increases have rested comfortably in the 3.9% and below range yearly, over the past 19 years.

Other provinces have similar policies dictating rent increases that can help you predict how much higher rent might be years down the road when your child is ready to study.

Student Loan Interest Rates

Given the exorbitant (and rising) costs of studying in Canada, many students take out loans to help cover their education costs.

The interest rates on these loans can fluctuate based on government policy.

The good news?

This is one of the few education costs that have actually gotten cheaper -- for now, anyway.

Currently, student loans are subjected to a 6.45% interest rate. The federal government’s 2019 budget will see this dropped down to 3.95% as of November 1, 2019.

This is expected to save the average student roughly $2,000 over the course of their loan.

It’s hard to predict what student loan interest rates will be 18 years from now but this year’s changes should give you an idea of how things can go year-by-year.

What Causes Education Costs to Rise?

Life naturally gets more expensive year-after-year in Canada. Experts refer to this as inflation and it means that all aspects of life -- including those that have nothing to do with your child’s education -- get about 2% more expensive every year.

Plus, government funding for post-secondary institutions has declined since 2009, leading to an increased importance of tuition as a revenue source.

What to do with this Information

Knowledge of future education costs gives you important context you need to plan for your child’s education.

You see, while tuition costs may rise by about 3%, the value of your savings can rise as well. A savvy RESP manager can help you create a plan that earns you significant interest on your savings. This can be a lot more effective than simply placing that money in an account that earns minimal or no interest.

The government also offers RESP grants that can help you increase your child’s education savings to keep up with rising costs.

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