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.

This article has 21 comments

  1. It’s a bit suspect to take your numbers on student expenses from a report by a group that makes a boatload of money from student loans.

    Consider: if education costs outstrip inflation, there must eventually come a time when there is nobody left who can afford a degree, right?

    …Uh, that us, unless some kind-hearted bank comes to parents’ rescue and offers to lend them the money. Then education costs can continue to inflate (just like housing costs did) thanks to readily available bank loans.

    And who benefits from this kind of inflate-and-loan scenario? I’ll give you one guess.

  2. Canadian Capitalist

    Patrick: Of course, the caveat that this is a projection applies. Over the very long term, what you are saying is absolutely true — education costs cannot outstrip inflation forever. However, the report is not talking about forever. It is talking about the next 18 years. They’ve sourced the data from Statistics Canada’s inflation numbers since 1993 and they are basing their forecasts on trends persisting. It is no secret that education costs have been inflating due to cutbacks and budgetary constraints. That trend may well continue. The report sounds very credible to me even if you suspect their motives.

    Off the bat, I could think of at least a couple of reasons why real estate costs have inflated. The easy credit environment due to securitization and the willingness of investors to buy asset-backed securities by the boatload is one. Another is the willingness of consumers to buy into the dream of home ownership whatever the cost. It is pointless to simply blame the banks.

  3. Education costs have been inflating due to the ready availability of student loans. If banks weren’t so eager to let people go into lifelong debt for their educations, and the people weren’t so willing to do so, universities would no longer be sheltered from the ordinary competitive pressures that keep prices down in other enterprises.

    As for homes: consumers have always had the dream of home ownership. That isn’t new, so it can’t explain the change. It is not pointless to blame the banks for effects that are their fault; I hope you’re not going to try to tell me with a straight face that banks don’t go to great lengths to keep everyone in debt.

  4. Canadian Capitalist

    Patrick: That’s your opinion, not a fact. A recent Toronto Star column points out that education funding was cut 21% in the 1990s and enrollment was up 8%. Universities had to fund their shortfall from somewhere and fees are an obvious place to look. That sounds like the cause for inflating education costs to me.

    Of course, banks want to make as many loans as possible. That’s the business they are in. But they have limits on the demand side and the supply side. If housing demand falls, they can’t originate as many mortgages. They also can’t make as many loans as they like if they are unable to fund those loans from somewhere. Neither the supply nor the demand is in their total control. It seems simplistic to point to banks as the culprits for higher education costs or housing prices.

  5. Thanks for the numbers – I’m more encouraged about being able to afford my kids’ education. Too many of the “projections” I’ve seen use unrealistic assumptions.

  6. The problem I see with this projection is that the greatest portion of expenses, “non-education related expenses” is not exclusive to those who choose to pay for their kids education.

    It more actually represents the cost of supporting adult children for several years after they finish high school. A practice that has become very common in recent generations. Furthermore, with the exception of tuition, I don’t see how any of these costs would differ from the cost of sending kids to high school. In fact, those who send their kids to private schools probably find that costs decrease when they move on to university.

    To make it worse, some of the numbers cited are absolute nonsense. $1000 per year for computers? Is that one $1000 dollar computer per year, or a $4000 computer right at the very beginning?

    • Canadian Capitalist

      @Chris: Good catch. Here’s what the report says: “Living expenses are also something that will be incurred regardless of whether a child pursues post-secondary education. The true additional outlay is the education-related costs, which are likely to be $64,363 over the four years of a university education that is embarked upon in 18 year’s time.” I believe they are referring to a student living at home. Naturally, someone living away from home will incur higher living costs.

      I assumed $1,000 for computers is for four years. But it says “average annual cost” in the caption, so it must refer to per year. I agree it doesn’t make much sense — unless students are spilling beer on their keyboards and replacing it every year 🙂

  7. Given I am living these numbers right now, and may live them again in 14 years, they are rather chilling, and worrying. The costs of University are many, but if you don’t plan on helping your kids out, does it matter? Most parents will try to help out, but can students actually make it on their own, without help?

  8. The study was conducted by the banks. The banks released this through their PR department. The banks also have the most to gain by over-inflating the costs (additional revenues by fattened RESPs and TFSAs).

    This is not unlike the overinflated “required” retirement income of 70% of your current lifestyle.

  9. Students can make it on their own. My niece attends York, 4th year, 80% full-time, works part-time, some grants/bursaries, and lives at home.
    Although my personal experience dates back almost two decades, my approach was similar, except I lived on my own in a cheap studio apartment.
    It all comes down to personal sacrifices and delayed gratification – studying/working/limited social life versus partying/reading week in Mexico, etc.

  10. I often find these exercises in using inflated numbers silly.

    ONLY if salary increases do not keep pace with the assumed inflationary rate, or if the government accelerates its rate of reducing spending on education will this matter.

    So what if tuition costs $100k, in 18 years, by then, an new graduating engineer will be earning $150k coming out of school instead of $75k.

    This particular report seems a little self serving.

    I think you’ve highlighted the REAL problem of affordability, lower government funding along with pay rate increases for student jobs that DON’T keep up with inflation. I’m assuming this is why the study uses a higher inflationary rate for those living at home, since the parents income and support allows those students to spend more and live more lavishly.

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  12. CC: If funding was cut, and schools passed on the costs to students in the form of tuition hikes, how did enrollment increase by 8%? Was everyone richer? Did more people just really really want degrees?

    Here’s how enrollment increased:

    The average student had almost twice the average debt at graduation in 2000 versus 1900.

    If this hadn’t happened, more and more people would have found themselves unable to pay the increased tuition, and the government would have been forced to restore the funding.

    Instead, the banks effectively removed this feedback mechanism, allowing funding to be cut with no obvious immediate repercussions for those seeking an education.

    • Canadian Capitalist

      @Patrick: The report you quoted looks at government student loans. It notes that 8% have solely borrowed from non-government sources and “on average, the amounts owed to non-government sources were generally smaller than government loans”. What you are essentially saying is: Governments cut funding for universities -> universities raised fees -> students still wanted PSE and were willing to borrow to invest in their degrees -> Governments provided more student loans -> banks are responsible for the cost of increased higher education. I fail to follow the logic.

  13. Uh… I meant 1990 of course. Not 1900.

  14. CC – Thanks for reading the report I quoted a little more closely than I did. 🙂

    Still, is everything a-ok just because the bank in question happens to be the Canadian government? What do you call an entity that collects other people’s money and then lends it at interest?

    The chain of logic you showed is exactly right, aside from the final step of course. It shows the Canadian government getting out of educational grants and funding, and getting into the lending business.

    • Canadian Capitalist

      @Patrick: I firmly believe that society at large benefits when Canadians get an University education. They earn more, they pay more in taxes… But here’s the question: did funding cutbacks slow down enrollment rates? I have no idea whether it did or not and I am by no means an expert in this area. If cutbacks did affect enrollment rates, you are absolutely right… we are not investing enough in our future prosperity. But if all it did was shift some of the burden from taxpayers to students, I don’t think it’s entirely unfair. Students either pay through debt-servicing charges on their loans or higher taxes on their earnings when they start working.

      I was under the mistaken impression that the big banks originate most of the student loans as well. The report you pointed to, which shows most loans are originated by the Government, implies that TD Bank’s report isn’t entirely self-serving (though they do get more business when parents save for their child’s education through them).

  15. CC: Well, I’m a strong believer in public education, and students paying for their own education is not, by definition, public education.

    It’s also not just a matter of whether students pay now or later. It’s a matter of whether students pay or everyone pays. We don’t charge parents to put their kids in kindergarten. Should some of the burden be borne those whose talents or inclination have sent them on a career path that doesn’t require a degree? Should the burden be shared equally by those who get different kinds of degrees? That’s the difference you get when you fund education by government taxation versus by students.

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  18. I was writing an article on education costs and the people at have a great calculator.

    Your readers may want to know.