Ontario recently announced it would end the freeze on domestic university and college tuition.Nathan Denette/The Canadian Press
Last week, Ontario announced it would end its years-long freeze on domestic university and college tuition and rejig student aid, all part of a financial rescue package for its higher education sector.
What does it mean for students and families in Ontario and anyone contemplating going to university in the country’s most populous province?
Here are four personal finance takeaways.
1. The tuition increases are eminently manageable. Postsecondary schools will be able to raise tuition for Canadian students by up to 2 per cent a year for the next three academic years and by the lower of either 2 per cent or a three-year average inflation rate after that. To put things in perspective, a 2-per-cent adjustment amounts to an average increase of $170 for the first year.
Even for parents of young children who won’t go to university for many years, the compounded increases are relatively small, assuming the current rules remain in place. For example, say tuition is $7,000 and your kid is 8. A 2-per-cent annual increase compounded over 10 years – when your child will be 18 and start their postsecondary education – works out to roughly $1,550 more in tuition. These aren’t scary numbers even for families with middling incomes.
As a reminder, Ontario froze tuition fees in 2019 after cutting them by 10 per cent. While the province is now allowing inflation adjustments, those increases start from the low 2019 base.
2. Cheaper rents should more than offset tuition increases, at least in the short term. For years, Ontario counted on foreign students, who pay much higher tuition, to help fund its higher education sector. When the federal government announced drastic cuts to international student permits in 2024 to help ease housing demand, universities and colleges suddenly saw a key source of revenue shrink dramatically. Hence, the need to beef up provincial funding and raise tuition fees.
The good news is lower international student arrivals have had the intended effect on the housing market: Rents have been dropping. That means lower expenses for many students who live away from home and off-campus. And the size of those savings likely dwarfs that of the tuition increase.
For example, in Toronto, the average rent for people living with roommates dropped from more than $1,300 a month two years ago to less than $1,170, according to rental platform Rents.ca.
3. The changes to financial aid are the bigger deal. Ontario is also shifting financial aid in a way that will see the province hand out many more loans than grants, defined as funding that doesn’t have to be repaid. Right now, students in need can receive a maximum of 85 per cent of their funding through the Ontario Student Assistance Program as grants. The new rules lower the grant allocation to 25 per cent of the financial aid.
This means lower-income students will have to take on more debt. A student who is eligible for the maximum amount of OSAP will be taking on an additional $3,500 a year in loans that would have previously been available as grants, higher education consultant Alex Usher estimates.
The Ontario government has said low-income students won’t have to absorb the cost of the tuition increase because they would be covered by OSAP or other financial supports. But that doesn’t seem to significantly change the math, given the small size of those increases.
The changes will hit hardest for the students with the lowest incomes who are eligible for the maximum amount of aid, according to Mr. Usher. That includes single parents, who qualify for more funding because they have dependents, but have limited ability to work part-time while in school.
The prospect of more student debt may also dissuade people in their 30s and 40s from going back to school to retrain after a job loss or to switch careers, he said.
4. RESPs can help. These changes are another reason for families to double down on RESPs to save for their kids’ education. Registered Education Savings Plans are tax-sheltered accounts for savings that can be used to fund a range of postsecondary education programs. I’ll leave it to this primer to explain how they work.
Here I’ll just say interest rates on savings accounts won’t keep up with even Ontario’s modest tuition increases. That’s why it’s important to invest the RESP funds. Here’s an excellent podcast discussing asset allocation strategies for these accounts, along with other important considerations.
Finally, a reminder that low-income families can receive up to $2,000 per child from the federal government by having an RESP account, without need for contributions.
Are you a current or aspiring student concerned about the recent changes? A parent worried about rising debt levels? To share your thoughts in a future story or on a Stress Test episode, send me an e-mail: [email protected]
Subscribe to the On Money newsletter
Erica’s personal finance reading list
It’s not a riddle out of J.R.R. Tolkien, it’s the one liner with which CIBC economists Benjamin Tal and Katherine Judge recap the current state of Canada’s housing. Prices are too high for buyers but not high enough for builders, especially in the high-rise space.
A recent poll commissioned by the CBC found that 43 per cent of respondents who had a crash in the past five years chose to pay for repairs out of pocket mostly to avoid a bump in their premiums. Frankly, I’m surprised that share wasn’t higher given the cost of insurance and car repairs, these days. Still, paying out of pocket comes with risks.
My colleagues Clare O’Hara and Jameson Berkow wrote this must-read deep dive into the push for selling private equity investments to everyday people. Investor advocates are sounding the alarm bell.
Chart of the day
New products that caught my eye
I’ve long been aware of Wirecutter, The New York Times’ product recommendations service. I subscribe to their newsletter and have found it useful from time to time. I didn’t realize until now that CNN has its own similar site, called CNN Underscored. Have you ever used it?
ICYMI
