Parents could be forgiven for going into sticker shock after reading press reports on the release of a TD Economics Report titled The Future Cost of a University Degree. Media reports gave prominent coverage to the headline numbers: an average cost of $137,013 for an undergraduate degree for a student living away from home and $101,426 for a student living at home. The Globe and Mail called it That’s one pricey piece of paper. The Financial Post headlined its column University degree may cost $100K in 18 years. Both papers incorrectly noted that these were “inflation-adjusted projections”.
Let us set the record straight. The report makes it clear that, eighteen years from now, a four-year degree would cost an estimated $92,369 in 2009 dollars for a student living away from home and $68,373 for a student living at home. An undergraduate degree currently costs $77,132 and $51,763 respectively. In other words, an university degree would cost about $15,237 more in 2009 dollars for a student living away from home, not the $60,000 you would have inferred from media reports. Granted, the actual increase isn’t exactly petty change but it can be planned for in advance:
Assuming an annual rate of return of 6.8 per cent on a balanced growth portfolio, the annual contribution to an RESP needed to cover the future cost of an undergraduate degree is $2,475 for students living away from home and $1,725 for students living at home. Alternatively, parents may wish to use a Tax Free Savings Account (TFSA) to ease the burden on saving. The annual contribution to a TFSA would need to be $2,900 for students living away from home and $2,150 for students living at home.
So, take a deep breath and relax. Yes, a university degree might become an even more expensive proposition but it is an investment that will still produce satisfactory returns in the form of a higher paycheque. You can plan for it in advance but if you are unable to cover or save for the increase, students can pitch in through summer jobs or co-op terms.
