Financing Private Schools (from 2000)

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Paying private-school tuitions that can reach $30,000 per child per year isn't in every family's budget.


But even though the prices may be out of reach for many, the education doesn't have to be. There are choices you can make and avenues to explore that can significantly offset the cost of private education and make the seemingly impossible-to-afford a realistic option for your child's education.

"It was a challenge for us," says Bill Hannah (a pseudonym) of Oakville, Ontario. Bill and his wife put two children though private school. One's now in university, the other graduates in 2001.

"We're not in the socio-economic bracket where we could afford it without financial assistance. Even with financial assistance, it was a bit of a strain on the family budget, but I don't think we're atypical."

Affording a private education can involve a number of options, from financial assistance in the form of bursaries and scholarships to investing wisely during the preschool years. Private school tuitions can range from a few thousand dollars a year to nearly $30,000. And that might not include expensive necessities such as uniforms, books, field-trip fees and even meals.

"Parents need to find out what's included in the tuition fees," says Hannah. "Each school is different. They need to find out what they have to pay for over and above the fees."

Planning is the key, says Carrie Tuck, director of marketing for Elliott & Page, a Toronto-based mutual fund company. "Start setting money aside early," she says. "Try to estimate how much it will cost and just start. It's never too late or too early."

Of course, parents and students can take out loans to help pay for education.

However, loans carry the added burden of interest payments. For those who think ahead and start planning while Junior is still toddling, a number of options are available:

Bursaries and Scholarships

"Many people probably are not aware that independent schools offer financial aid," says Michael DesRoches, executive director and secretary of The Appleby College Foundation, the arm of Oakville's Appleby College that administers scholarships and bursaries.

Scholarships are financial awards generally given strictly on academic merit. Bursaries are grants given according to financial need, and generally need to be applied for.

The amounts of scholarships vary from school to school; at Appleby College they're $500. Bursaries can cover up to 75 per cent of tuition fees. Appleby doles out more than $400,000 a year in scholarships and bursaries, DesRoches says, and other schools probably hand out much more.

Such financial assistance is generated by a school's endowment, a permanent block of money that earns interest income, which is used for bursaries and scholarships.

DesRoches says the process of applying for a bursary probably is similar at most schools. At Appleby, a family completes a bursary application, which is sent by Appleby to a third-party assessor. The assessor makes a recommendation, which is returned to the school. The school can then follow the assessor's recommendation, or adjust it according to its own knowledge of the family's situation and the child's potential.

"Not all good, worthwhile kids come from wealthy families," says DesRoches. "One of the things independent schools need to do is ensure there's a mix in the student body so we don't get all the same people from the same religious, economic or social background."

DesRoches says it's important to get all the details from a school's admissions office, and to learn about the potential financial assistance available. "Many parents drive by an independent school and think, "Gee, I'd like to send my child there.' They might be able to, with some financial assistance."

Trust Funds

There are two types of trust funds - formal and informal.

Formal trust funds are generally used for large sums of money, usually more than $50,000. These funds typically come with strings attached, such as how and when the money can be used. They are established by lawyers, which means fees for set-up and annual administration. Additionally, the trust is a legal entity and must pay taxes on income and dividends.

Informal trust funds are usually used for smaller sums of money. Again, taxes are paid on income and dividends. But informal trusts can be opened through most financial institutions without the help of a lawyer and typically do not carry administration fees. When they are cashed in, recipients have to pay capital gains taxes. Also, recipients gain full control of informal trusts at age 18 and are free to do what they wish with the money. Finally, informal trusts aren't transferable.

Mutual Funds

A parent usually opens a mutual fund in his or her own name. This provides the flexibility of accessing the funds at any time, changing investment strategies and using your money when and how you want to.

"A non-registered account is a lot easier to manage," says Tuck. "The downside is you pay tax every year."

Mutual fund dividends, interest income and capital gains are all taxed in the contributor's name.

RESPs

Of course, once Junior is through with high school, university looms. Besides tuition, other costs need to be factored in here too, including books, rent, food and transportation. Again, planning ahead can significantly reduce the financial burden of putting a child through university.

One of the most popular and practical savings vehicles is a Registered Education Savings Plan (RESP). Like an RRSP, the investment depends on what type of risk you're willing to take. Also, says Tuck, you can adjust your investment strategies according to how close you are to cashing out.

Investing in RESPs offers some definite benefits, says Tuck. First, they grow tax-deferred. That means you don't pay taxes on the money invested until the RESP is cashed in. And then, it can be taxed at the income level of the recipient (student), not the donor (parent).

Even more significant is that RESPs are topped up by the government, which offers a 20 per cent annual top-up on up to $2,000 worth of contribution. That's a free $400. And if you can't contribute $2,000 in one year, you can carry over the potential credit to the next year.

There is a $4,000 maximum annual contribution on RESPs and a lifetime maximum of $7,200 from the government. But they can be transferred from one sibling to another, and even transferred to your own RRSP (if you have room) if your child doesn't pursue post-secondary education, says Tuck.

Despite a tight family budget, Hannah's children will benefit from RESPs, even if it required a little help from the grandparents. "We scrimped a little, like some people do. We keep a car for 10 years, not two or three. We live in a modest house," he says. "I suspect a lot of this comes down to what kind of a priority parents put on education."

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