Insights and Market Perspectives

Pay now or pay later?

Author: Sound Choices

August 17, 2018

Back to School series:
How will you pay for a post-secondary education?

The content in the below article is meant for Canadian investors only.

A report earlier this year estimated that one year of post-secondary education in Canada costs approximately $19,5001 – including tuition, accommodation, transportation, food and other expenses.

Assuming a 3% rate of inflation, that equates to $33,1972 in 2036 (18 years from now).

And four years will $138,884

How will you pay?

Here are your options – how much you pay is up to you

TOTAL PAIDLump SumMonthly Payment
Now$48,655$70,200 from you
- principal + interest

Option # 1: Pay Now

  • Invest a lump sum of $48,655 today
  • Growing at a hypothetical average annual rate of return of 6% = $138,877 in 18 years.

A lump sum of $48,655 today, growing at a hypothetical average annual rate of return of 6% = $138,877 in 18 years

Option #2: Pay monthly

  • Invest $325/month in a Registered Education Savings Plan (RESP)
    • Contributions made to an RESP grow tax free until the funds are withdrawn to pay when the beneficiary is registered at a designated educational institution.
    • RESP savings can be supplemented with government education savings initiatives, including the Canada Education Savings Grant (CESG)
    • $325/month qualifies for a $500/year CESG
  • Total invested:5
    • $45,000 lifetime RESP contribution
    • $25,200 in additional savings
    • $7,200 lifetime CESG maximum per beneficiary

Invest $325/month in an RESP – which qualifies for a $500/year CESG

Option #3: Pay As You Go

  • Pay at the beginning of each school year2

Pay at the beginning of each school year

Option #4: Pay After 

  • Their post-secondary education is financed through student loans that are interest-free while they’re in school.
  • After graduating, however, those loans must be repaid. You generally have 10 years to repay your student loans. Here’s one scenario:
    • Loan of the full amount: $138,884
    • Interest rate: 6.2% (prime of 3.7% +2.5%)
    • Monthly payments: $1,555.88
    • Total interest paid: $47,821.60
    • Total amount paid: $186,705.60
  • Annual amount illustrated below: $18,670.56 a year for 10 years

Monthly payments: $1,555.88 x 12 = $18,670.56 a year for 10 years

Talk to a financial advisor to learn how they can help you in this situation. For more RESP information, visit

Note – These calculations assume that:
– Lump-sum investments are held for 18 years
– Monthly investments are made at the beginning of each month for 18 full years
– All investments earn an annual compounding rate of return of 6%
– All distributions are reinvested
They do not include any fees or taxes payable. The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investments
Weighted average of all major expenses for a typical undergrad student living off-campus at a Canadian university. Source: “The cost of a Canadian university education in six charts,” Macleans, April 1, 2018.
$19,500 with 3% inflation for 18 years = $33,197.
$19,500 with 3% inflation for 18 years = $33,197. $19,500 with 3% inflation for 19 years = $34,193. $19,500 with 3% inflation for 20 years = $35,219. $19,500 with 3% inflation for 21 years = $36,275.
A lump-sum investment of $48,655 invested now in a managed portfolio growing at an average annual compounding rate of return of 6% = grows to $138,877 in 18 years.
$2,500/year plus $500/year CESG Grant (to a maximum of $7,200) starting now earning a hypothetical average annual rate of return of 6% grows to $90,772 in 18 years. Plus an additional $1,400/year saved into a Tax-Free Savings Account (TFSA) with a hypothetical average annual rate of return of 6% grows to $43,269, totaling $134,041.
6 Loan of $138,884 at 6.2% (prime of 3.7% +2.5%), 120 monthly payments of $1,555.88. Total interest paid $47,821.60. Total amount paid $186,705.60. Assumes first payment is six months after graduation.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit

© 2018 AGF Management Limited. All rights reserved.

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