No RESP-ect for group scholarship plans

September 7 2008 by Ellen Roseman

I drew lots of flak about my column last week about a new report for the federal government about RESP industry practices. Canadian Capitalist also wrote a post about this report.

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.

104 comments

  1. Ram

    May 27 2014

    Hi Mona,

    If you ever ended up transferring your money, can you share your experience? Did you pay any penalty for breaking this?

    Thanks,
    Ram

  2. Grandma

    Jul 14 2014

    I started a plan for my granddaughter 14 years ago. She and her parents have moved out of the country.

    Knowing that she will not be eligible for the Canadian government grants, I decided to cancel the plan.

    Just now, I have received a cheque of $17,000 from the over $22,000 in total contribution. The total amount of fees deducted is over 23%!

    I am ok with not receiving the $5,500 government grants and related interest earned. However, by terminating the plan, it also resulted in forfeiture of the $4,000 investment income earned.

    So for CEFI to take away $9,000 of the money in the plan I really feel it is a scam!!!

    DO NOT, DO NOT invest with Children’s Education Funds Inc. What they are doing should be a criminal offense. Where are the government regulations on CEFI?

    I wish I had done my homework first!
    Grandma

  3. Jeremiah Alger

    Jan 15 2015

    Hi, I am a student and a recent victim of Heritage. They robbed me and my family of $10,000 and like a lot of other people here, we did not see this coming.

    Heritage creates an honourable image of itself that it portrays to society. It is time somebody cleans that lens and exposes Heritage’s true colours.

    I am working with an investigative journalist to start a film series called Exposed. The first episode is on Heritage. With enough attention, we can demand a change.

    We are beginning to gather proof, including electronic signatures, documents, interviews with people that are wiling to stand up for themselves, interviews with Heritage, aggressive sales tactics/marketing schemes and related court cases.

    We need your help. Email me, thejalger01@gmail.com

  4. Ferry

    Aug 30 2016

    OMG!!!! Why did I recently found out about this forum?????

    I signed up with CST in May, 2 weeks after my son was born. I did some quick research on the RESP while pregnant, but didn’t go in details and figured, if those registered saving plans receive grants from the government, they should be highly regulated and safe, right???

    WRONG! I just took a look at my statements and saw that of the $500+ that was “invested”, no dollars were in my son’s capital. No grant money, no nothing!

    I was aware of the “fees” but was told that over the course of the 17 years they would be paid off. I am one month past the 60 day opt-out period and I am so mad and desperate.

    Same as with Mona, the CST rep came to our house after I gave birth to a premie by c-section and was exhausted with everything. I googled CST, but nothing negative came out, so I thought I was doing the right thing and did not cancel the registration.

    I am so discouraged as I am low income. I am looking at my son right now and just can’t stop crying because I know I’ve been robbed and the hard money we earned will not even go for his education.

    I don’t know what options are there for me and for other people in my situation. The government should definitely look into that SCAM!!!!!!