When it comes to expenses, college education ranks high up there for any young adult. According to Statistics Canada, undergraduate students paid an average of CAN$6,580 for the last school year, which was 1.7% more than the average for 2019/2020.
American colleges are showing similar hikes in tuition fees. In fact, US News reports that the numbers are expected to be higher for the school year 2021-2022. There are other costs to think about as well, like books, transportation, and school miscellaneous fees (like the library fee).
However, costs shouldn’t deter people from going to college.
Whether you’re a parent looking to give your children the best opportunities available, or a teen funding your own education, this guide will teach you how to save money for college.
Open an RESP Account
If your child is still young and you live in Canada, your best option is to open a Registered Education Savings Plan (RESP) account. An RESP allows parents or registered guardians to invest money and let it grow tax-free. The money can only be withdrawn for college expenses though, so don’t treat it like a saving account.
The best part about opening an RESP account is your eligibility to avail of the Canada Education Savings Grant (CESG). This is a government-sanctioned program that matches 20% of your RESP contributions annually. Since RESP contributions are capped at CAN$2,500, this means that the government can add up to $500 every year.
One thing to note is if the student withdrawing is earning formal income, the withdrawal is taxed
Look into an ESA
If you live in the US, your target is a Coverdell Education Savings Account (ESA). This trust account works very much like the RESP in the sense that it can only be used for educational expenses.
The money in the account grows tax-deferred, not free, but taxes will only be applied once the child the account is for has enrolled in college. Contributions to the Coverdell ESA cannot exceed US$2,000 (per account). It’s not a lot, which is why it helps to start funding one early.
On the rare occasion that your earnings exceed your post-secondary education fees, the account holder of a Coverdell ESA can be transferred to another family member below the age of 30.
Choose a 529 Plan
Named after its section in the US Internal Revenue Code, the 529 plan is a tax-deferred account that, much like all the options above, allows parents to invest money for educational expenses.
There are two types of 529 plans: the prepaid and savings plan.
- Prepaid Plan – This allows you to purchase college units or credits (as well as board and room, if applicable) at the rates they come at the moment you open the account. This way, you can avoid the massive tuition inflation rates that the industry will experience while your child is still growing.
- Savings Plan – This works like the Coverdell ESA, except there’s no annual contribution limit. However, your money goes into state-sponsored investments, whose gains are a little lower than Coverdell ESA’s stocks.
A prepaid 529 plan is cheaper but limited in coverage, while a savings plan can be used for any educational expenses. There’s no right option, so simply choose the one you prefer.
Use a TFSA
The TFSA or Tax-Free Savings Account is a plan offered to Canadians who want to grow their money free of tax. While it doesn’t offer grants like the CESG, it does have its benefits.
First, unlike the RESP, it lets you withdraw money tax-free regardless of whether the student withdrawing has formal income or not.
Money in a TFSA account can also be withdrawn at any time for any purpose. This means it can double as your emergency savings fund if necessary.
Lastly, since a TFSA generates contribution rooms annually, any amount that you withdraw can be re-contributed before the agreed date, allowing you to still receive full gains.
Reduce Your Bills
Lower household bills means more spare cash to add to your children’s education savings.
For example, you can get a smart thermostat to monitor your heat usage. These can be programmed to reduce your heat if they sense that the environment is warm enough.
You can also negotiate deals on non-utility expenses like carrier services and internet costs. After all, more often than not, the “recommended” deals listed on their pages aren’t the cheapest — you’d be surprised at how many plans they offer at more affordable rates.
If you’ve been a subscriber of a single service for a long time, our post on How to Negotiate and Save Hundreds of Dollars on Recurring Household Bills can even teach you how to convince your provider to bring the bill down.
Study for AP or CLEP exams
As a student, one way to reduce your college costs is to cut out some classes from your education plan. Take the Advanced Placement (AP) exams if you’re a Canadian resident or the College-Level Examination Program (CLEP) if you live in the US.
Both are offered to high school students to test their knowledge in a variety of subjects, like Geography and Psychology. Their content is roughly the difficulty level of first-year college exams. This is why most, if not all, local universities will award you with college credits if you score high on them. This will cut a chunk out of your tuition fee.
For AP exams, you need to get at least a 4 (“well-qualified”) for that subject to get exempted from the class. For CLEP exams, you automatically get credit if you score at least a C (50 points) for that subject. Of course, you do get more, the better your grade.
AP and CLEP prep books are sold on online shops and in local bookstores to help you prepare. Just be sure they are published by a university or a professional with the necessary credentials.
You can take CLEP tests anytime and anywhere through their website. However, AP exams are only offered at AP-participating high schools. You can check if your school is included via the AP Course Ledger. If your school isn’t part of the list, don’t worry — you can register at a nearby one that does administer them.
Apply for Grants and Scholarships
Another way for teens to reduce college expenses is to apply for scholarships and grants. Almost every school offers scholarship programs.
In fact, financial expert Lesley-Anne Scorgie found that “millions of scholarship dollars” are left unclaimed in Canada every year because students don’t bother to apply for them. The same holds true for US colleges. The opportunities are there — just do your research and take the initiative.
Your chances of getting accepted is usually dependent on your grades. However, some scholarships are based on talents, athletic prowess, accomplishments, or creativity.
You might also be surprised to see the sheer number of scholarships and grants available for specific fields of study, such as Carleton University’s Barry C. Scott Scholarship in Business Journalism and the Mount Mary University’s Frederick R. Layton Scholarship for arts and design.
Get a Job
Last but not least, if you are 14 years old or older, you are legally allowed to take formal work in North America. So, as soon as you reach that age, you can look around your community to see if there are shops or residents hiring for help.
Look for jobs that don’t need educational requirements and won’t affect your studies. Babysitting, pet sitting, over-the-counter retail, car washing, and delivering newspapers are great for teens looking to make extra cash.
If you’re reluctant to leave the house, you can always look for remote jobs like voice acting and tutoring. Online job marketplaces like Fiverr, Upwork, and Freelancer are good places to start job hunting.
Saving money for college isn’t easy, but there are plenty of opportunities out there as long as you know where to look. Check your options; do your research. Many of the above tips are best taken advantage of as early as you can as well — so make sure you’re not putting everything off until the last minute.