Student Loans and Education Financing updated 2013

1.  What student loan options do I have?

There are 2 main government student loan options (National and Provincial) and there are Education Loans from Financial Institutions like Credit Unions and banks.

2.  Which is best for me?

 I would recommend starting with the Provincial and National student loan programs.  You apply for both on the same application.  With these government student loans you do not pay or accumulate interest while you are going to school, there are some payment relief programs in place after graduation, and the interest paid on government student loans is tax deductible.  There are also some scholarships or grants that may decrease what you owe for government student loans.

More information can be found at http://alis.alberta.ca/ec/fo/pay/loans-grants.html

3.  So why would I use a credit union or bank education loan?  

Registered Education Savings Plan (RESP)

The second article that I ever wrote for RCU Speak was about RESPs.  You can find it here.  RESPS are probably the best investment option to save for a child’s education, and I would hope every parent/grandparent would look into them to save for their children’s future.

The basics of a Registered Education Savings Plan are:

• Contributed money grows tax deferred, so it is not taxed until it is withdrawn, usually when the student is in a low tax bracket.
• With each contribution, up to defined limits, the RESP will receive a bonus from the government of 20% to 40%, depending on the family’s income.  This bonus also earns interest.
• An RESP can be opened for a person at any age, but can only remain open for a maximum of 26 years.  The CESG is only available if the beneficiary is 17 years old or less.
• The Canada Education Savings Grant provides anyone who invests in RESPs with an amount equal to 20% of yearly contributions, up to an annual maximum of $500 per child (and to $1,000 from $800 if there is unused grant room from previous years) to a maximum of $7,200.
• There is a maximum lifetime contribution limit of $50,000.  If you contribute more than $2,500 per year ($5,000 if there is unused room), you only receive the above mentioned amount from CESG per year, but the whole contribution grows tax sheltered.
• The child/children who is the beneficiary(ies) of the RESP must have a Social Insurance Number from the government to have an RESP.

Some additional things to be aware of:

15% of parents are saving for kids education over retirement

Good article by Jonathon Chevreau of the Financial Post about saving for retirement and children's education at the same time.  Some scary stats about how many are saving for neither one of those.

http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/09/23/15-of-parents-put-kids-university-savings-ahead-of-their-own-retirement-plans.aspx