 Performance figures for each account are calculated using time weighted rate of returns on a daily basis. The Composite returns are calculated based on the asset-weighted monthly composite constituents based on beginning of month asset mix and include the reinvestment of all earnings as of the payment date. Composite returns are as follows:

• 1 yr – 2.96%
• 3 yr – 7.61%
• 5 yr – 6.12%
• 10 yr – 5.90%
• Since Inception – 7.02% # Family Financial Planning Part 2: Estimating Accurate Costs of Post-Secondary Education

By Christopher J. L. Warner FCSI CFP CIM PFP

Read Part 1: Managing the Increasingly Expensive Future of Post-Secondary Education.

## Estimating Accurate Costs of Post-Secondary Education

Understanding Cost Disease (or the Baumol Effect), explained in part one of the Family Financial Planning series, we see that increasing education costs are all but inevitable unless significant societal subsidies were created, which currently seems unlikely. What then can parents and grandparents do to help their families maintain access to higher education?

The answer is: Plenty, so long as we can anticipate and then plan for these costs. The first step is to estimate the true expected cost of education, then take steps to manage it.

1. ### Estimating Tuition Costs

As mentioned in part one, the 2021 annual cost of an undergraduate degree averages out to \$8,474 across Canada. We also saw in part one that tuition expenses have increased at about double the rate of inflation. If we assume a child born today will be attending post-secondary in 19 years, then we can analyze what the cost is likely to be.

1. The Bank of Canada CPI target is 2.00%, so we will use this figure to assume inflation growth.
2. To get our expected cost appreciation on education, we will double the CPI rate. 2.00% doubles to 4.00% which is our expected cost appreciation rate.
3. Next, we need the total current value of education costs before we can calculate future costs. We’ll take the annual tuition cost of \$8,474 and multiply it by 4 years (typical length of an undergraduate program), assuming 4% annual appreciation, to get a total undergraduate program cost of \$37,424.
4. Now we assume \$37,424 grows by 4.00% for 19 years, the time from now until our hypothetical child is ready to enter into post-secondary, which gives us a future dollars cost of \$78,847.

Here we see that the cost of basic post-secondary is already close to 79% of the way to six-figure education debt. Note that we are not factoring in other likely costs, which may be substantial in their own rights, such as housing, food, equipment, transit, and so on. We could also calculate those if desired.

1. ### Adding Living Costs

Next, let’s determine what living costs would be and consider a simpler method based on published cost estimates for post-secondary education in our area. For instance, if the child were to enroll and live at UBC, the current cost for a room and a meal plan is at least \$10,700 for two terms[i]. Adjusted for CPI (living costs should not see the Cost Disease/Baumol Effect), that means the child would be paying another \$64,247 over the 4 years. When these costs are added to program costs from step 1, the total cost reaches \$143,094. And this is only for the undergraduate degree.

1. ### Graduate Programs

In an increasingly competitive world, a student may undertake additional higher education such as a master’s degree or doctorate, which would have even higher annual tuition fees. If we assume our hypothetical student was planning to enroll in a Canadian medical program (currently \$14,604[i] per year), then using the 4% cost appreciation estimate will project another \$130,657 in tuition costs. In total, this would make the base cost of training a doctor \$209,504[ii] before we even factor in their costs to live.

We could add those living costs in for a final tally. For simplicity, if we assume 8 years of room and meals above to be the living costs[iii] (which admittedly is conservative), then the student would be graduating medicine with total costs of \$345,927.

### Analysis

Steps 1 through 3 can be repeated for a variety of scenarios to give a range of potential costs for students. They can be amended for shorter savings timelines, different programs and costs, varying levels/years of expected education, or to account for variability of living costs (i.e. live at home, live abroad, live in an expensive city vs. a less expensive rural area, etc.). A thorough analysis of these steps will produce as good an approximation of the future as is ever possible – without the use of a heavily modified Dolorean at least. For those not confident in doing this planning themselves, a certified financial planner would be a great help.

In the final post of this series, I will share a general order of savings vehicles that families may want to consider when saving for their child’s post-secondary education.

[iii] 75814 + 130657

[iv]  N = 8, I/Y = 2, PV = 0, PMT = 10,700, SLV FV = 93,645
N = 19, I/Y = 2, PV = 93645, PMT = 0, SLV FV = 136,423