Higher Education: How to pay for it
There’s never a bad time to get that college or university degree, although paying for it can be another matter. Still, where there’s a will, there’s a way…and maybe even a couple that you haven’t thought of yet!
Chartered Accountant Jeffrey Nightingale, BComm, MBA, CA, TEP, is Senior Tax Partner with Lipton LLP Chartered Accountants in Toronto. "Sometimes, money can be freed-up to help pay for school," he says. "Savings plans can also be set-up and structured in ways that can help them grow and/or ensure the money in them is used only for post-secondary education."
Here are a few places that Jeff suggests you might start to look for – or put some of that money – for higher education.
Insurance policies – Often, whole-life, universal life, or a similar kind of insurance can provide a source of funds for school. It may be possible to borrow against the cash value in the plan – maybe not for free, but probably at very favourable interest rates.
Parents or guardians of college-bound children can also buy certain insurance policies that provide money for education by having a specific cash value available at the time the post-secondary education is commencing.
Inter vivos trusts – In their simplest form, these can create a source of funds for a beneficiary to use for a specific purpose while you’re still alive, just like a testamentary trust in your will lets you specify how your beneficiaries must spend the money you leave them when you die. "The rules pertaining to trusts and how they can be used are very complicated and can be dangerous for the unwary," says Jeff. "Much depends on the type of trust and the way it’s been established, so a Chartered Accountant and a lawyer should be consulted to be sure it’s structured properly and to your best advantage."
Canadian and Ontario governments – For both full and part-time students, the federal and provincial governments step-up with tax credits for tuition, education amounts and deductions/credits for things like child-care, moving expenses and interest paid on student loans.
If you’re planning for a child’s college or university education, one of the best places to start is with a government-approved Registered Education Savings Plan. These earn income on what you and the government have invested and when needed, the income is transferred to the student (from the contributor) at his or her rate of tax.
If you’re caring for a child with special needs, there is help available in the form of Registered Disability Savings Plans and the Canada Disabilities Savings Grant, which can be used for education and care. Find out more at the Canada Revenue Agency’s website at www.cra-arc.gc.ca.
Scholarships, fellowships, prizes or bursaries – A wide variety of these exist, sponsored by educational institutions, foundations or even private individuals or corporations. Because their proceeds are to be used for education specifically, they can sometimes be structured in a way that’s similar to a trust. While the requirements, qualifications and monetary amounts vary, these grants for education can sometimes be non-taxable and are well worth investigating.
Your employer – Many companies offer educational assistance plans to employees, especially for career-related courses or degrees. Depending on the nature of the business, your job or what you intend to study, your employer may even provide some flexibility with respect to work hours or responsibilities. Some also offer scholarships for academic excellence, or grants to pursue studies in areas of special interest to the organization.
The CRA recently announced beneficial rules for arm’s length plans that would be treated as a scholarship, whether in the form of a classic scholarship or not.
Ultimately, if higher education is your goal, there are many roads to get there so think ahead and consult your CA if the financials become complicated.