News Releases

The cost of a university education is skyrocketing past students' estimates and pushing them into debt that will delay them from future milestones, such as purchasing their first home.

According to a study conducted by BMO Bank of Montreal, more than half of students polled underestimated the cost of going to university by as much as 34 per cent, while almost half admit to having run out of funds. Moreover, while students acknowledged they could be faced with debt after university, many of them admitted they are not taking pre-emptive steps such as getting advice from their parents or a financial expert.

Most students said it will take them an average of five years to repay their student debts and acknowledge they will be forced to delay purchasing a home or initiate savings and investments. Almost 20 per cent of those who go to school in their hometown say they will have to continue living with their parents in order to pay off their debt, while nine per cent of those who go away to school say they will be forced to move back in with their parents.

“Students accept that debt will be a way of life after university, but more than half of the high school graduates we polled said they haven't done a budget for their first year,” said Sid Chopra, Director, BMO Bank of Montreal. “It is crucial students develop strong financial planning skills early so they can minimize the burden longer term.”

According to recent data, the average cost of a university education for those studying away from home can run up to $11,000 per year.^[1] However, 53 per cent of current university students polled said they had budgeted only $9,000 or less for their previous year of studies.

The study reveals students are unprepared for the numerous day-to-day expenses associated with university life, such as fees, entertainment, groceries, transportation and health care.

“While many parents advise their children to seek expert financial advice after graduation and when they begin their careers, most fail to recognize the value of seeing a financial advisor to get help budgeting for education expenses,” said Mr. Chopra. “BMO has financial experts who can help students understand how to establish a realistic budget and manage day-to-day expenses.”

Mr. Chopra said banks, transportation providers and other retailers all vie for student customers and will offer suitable discounts to attract their business. “Be smart about where you spend your money and how you spend your money,” said Mr. Chopra. “Student discounts can help you significantly lower the day to day cost of going to school.”

BMO recently introduced the BMO SPC Mosaik MasterCard to help students maximize their use of discounts and savings on clothes, food, entertainment, travel and other services at more than 110 merchants in 10,000 locations across Canada. In addition, the new card can help students establish a strong credit rating, which will be crucial to receiving approval on car loans, business loans and mortgages after graduation. ________________________

^[1] The cost of a university education will vary based on provincial subsidies, university tuition fees, and regional cost of living indexes.

Background

Tips for university budgeting

• Develop a realistic budget that includes textbooks, supplies, computers (software and Internet), transportation, general living and social expenses
• Expect the unexpected and be prepared. From extra costs for books to a flat tire or an unplanned trip home to see the family, unexpected expenses do arise and students should have a financial contingency plan.
• Take advantage of student discounts, as every cent counts. Many stores and transportation networks offer discounts so don't be afraid to ask. BMO Bank of Montreal is one of the only banks to offer free banking for students so shop around before opening an account or asking for a loan.
• Pay as you go – If you can, pay for your education as you go. Many students enter college or university without having a sound plan to fund their education: Consider using savings from a summer or part-time job throughout the year to help you pay as you go.
• Know your financing options – If you do not qualify for government assistance and/or do not have enough savings from a summer job, most financial institutions can provide financial help with a loan or a line of credit.
• Think both short and long term – By having two different bank accounts, students can manage their short and long-term financial needs separately. A day-to-day chequing account is perfect for daily and weekly needs, while a savings account is a good place to park money needed later in the year.
• Regularly re-evaluate your financial needs – As you go through college or university, the financial assistance you require often changes. Scheduling regular appointments with your banking professional is one way to maintain healthy finances and allows you to make any necessary financial adjustments.
• Pay interest only on the funds you use – Student Lines of Credit differ from traditional loans because once approved, you take out only what you need, when you need it, as many times as you want (up to your credit limit). Also, they are open for repayment at any time without penalty.
• Stretch the dollars you do spend – Look for ways to turn your spending into savings. Loyalty features such as BMO's AIR MILES reward miles can help defray the cost of future purchases for travel, entertainment or merchandise and more. Students can also earn rewards through a student line of credit and recently announced BMO SPC Mosaik MasterCard.
  
  If you're a collector but prefer to save with cash, consider credit card programs, such as BMO Mosaik MasterCard's CashBack feature, which give you cash back for the rewards you collect.

Regional Survey Findings

• Current and prospective Quebec university students have a much lower estimate of the cost of education with 51 per cent predicting the cost of their first or next year of schooling to be under $7,000, much higher than the national percentage of 32 per cent
• Students in Atlantic Canada were much more likely to overestimate the cost of their university education with 13 per cent budgeting more than $15,000 for their next year and 26 per cent budgeting $10–15,000
• More Ontario students said they were budgeting within the proper cost range of $10–15,000 than any other region, but overall Ontarians budget the lowest when compared with the nationally predicted budget of $9,300
• Students in the Prairies were twice more likely to possess a credit card in their first year of university than students in Atlantic Canada, where the credit card possession rate stood at 29 per cent
• Atlantic Canadian students had the highest estimate of post-graduate debt with 37 per cent of respondents predicting they will be more than $30,000 in the red. Conversely, only five per cent of Quebecers estimated their debt to fall into the same category
• British Columbians and Atlantic Canadians were most likely to say the rising cost of tuition is forcing them to reconsider enrolling in university, while Quebecers were the least likely to say so
• British Columbians were the most likely to get financial planning advice from the Internet while Quebecers were most likely to seek out advice from a financial institution

The study was conducted by TNS Canadian Facts from August 14–19 and polled 1,017 students across Canada. All data was weighted by age, gender and region to achieve a true representation of 18- to 24-year-olds in Canada. A copy of the full survey is available upon request.

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