September 7 2008 by Ellen Roseman
People thought I was criticizing the whole idea of saving for post-secondary education. They also thought I was too hard on the old-fashioned group scholarship plans.
So, let me admit that I had RESPs for my two boys with Canadian Scholarship Trust. (The self-directed plans weren’t around when they were young.) Both have now finished a four-year BA program, so I got my money’s worth, so to speak.
But I often hear complaints from readers about the rules governing group scholarship plans. You pay the enrolment fees up front — and 20 per cent of gross contributions went to fees in 2006, according to the report — but you lose that money if you have to close the plan before maturity. It’s deducted from your refund.
Also, you lose out if your child starts university at a younger age (see comment below) or if your child takes only a year or two of post-secondary education and drops out.
I suspect that the new tax-free savings account, coming next year, may cut into the RESP market. You can save for anything you like without paying tax on the investment income (up to $5,000 a year) and you don’t have to worry about children going to college or university or staying enrolled past the initial years. The money isn’t earmarked for a specific purpose.
Of course, you don’t get the same forced savings effect. And you do give up the 20 per cent Canada Education Savings Grants that come with RESPs. But for some contributors, the much greater flexibility of the TFSA will be worth the tradeoff.