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Canada’s CESP Encourage Early Savings For Post-Secondary Education
Since 1998, the Government of Canada has been providing incentives to encourage early and sustained saving for a child's post-secondary education through the Canada Education Savings Program (CESP). As one of the longest-running examples of a national asset-based program, the CESP is pleased to have this opportunity to share some of our successes and ongoing challenges with our colleagues in the asset-building policy community. To give a sense of the scale of our efforts, note that the population of Canada is about 35 million – just a bit less than that of California.
Our program uses Registered Education Savings Plans (RESPs), the equivalent of US 529 plans. RESPs allow assets to grow tax-free, and the savings can be used for full- or part-time studies in any type of post-secondary education: university, community college, trade school, or an apprenticeship program. RESPs can be opened through most banks, other financial institutions, or specialized RESP dealers across the country; and a wide variety of investment options and features are available. RESPs are also exempt from asset tests for social assistance in all Canadian jurisdictions.
Savings incentives from the CESP are available to any child in Canada who is the beneficiary of an RESP. The Canada Education Savings Grant is a universal matching grant of 20%, 30%, or 40%, depending on family income and the amount of contribution. The Canada Learning Bond is a series of lump-sum grants totaling up to $2,000 that low-income families can receive without putting in any of their own savings.
The CESP is delivered through a unique arrangement with about 80 financial institutions and specialized dealers across Canada. They apply for the incentives on behalf of the client when an RESP is opened, administer the incentives, and disperse the funds once the student enrolls in a qualifying program. These companies receive no compensation from the Government of Canada, but are free to advertise RESPs as part of their business.
Participating in the CESP is no small commitment for RESP providers, as they must make significant investments in technological infrastructure. All steps of the process – from client application, to verifying client income, to funds transfer – are handled electronically. Each month, the CESP processes about three million transactions from our delivery partners.
We’re proud of the impact the CESP is having in preparing Canadian students for post-secondary education. Currently, over 45% of Canadian children have received a matching grant – this has increased significantly since the beginning of the program. Participation in the Canada Learning Bond is also increasing but has a bit further to go since it only became available in 2004. Nearly 28% of eligible children from low-income families have now received a Canada Learning Bond.
More and more Canadian students are using this money to access post-secondary education. In 2012, more than 328,000 students – roughly 15% of all post-secondary students – benefitted from an average of $7,235 each in funds withdrawn from an RESP. (By comparison, the average annual tuition for an undergraduate university program in that year was about $5600.) As more children grow up with an RESP, we hope to see these figures continue to grow as well.
These results are encouraging, but we have more work to do to ensure that these benefits are accessible for all children. As with 529 plans, the process of choosing and opening an RESP can be challenging for many families. Improving this involves addressing a complex array of issues – including awareness, financial literacy, complex application processes, and more. The field of behavioral economics, as well as other work on creating inclusive savings programs, is providing some important insights. We appreciate the many organizations working to gather and disseminate best practices and evidence on how to enhance participation in savings programs.
We are also interested in developing a deeper understanding of the non-financial benefits of education savings, such as strengthening expectations and encouraging planning. Recent US research, such as the work of William Elliott and others, is raising the bar in this regard. Work remains to fully explore the available Canadian data and better understand the Canadian context.
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