With the continuously rising costs of secondary education, saving money for your child’s education ahead of time is necessary if you want to ensure they have every educational opportunity. The overwhelming cost of secondary education is even more unfortunate considering that having a post-secondary education is often a prerequisite for the best jobs.
The good news is that the Government of Canada recognizes that post-secondary education is cost-prohibitive, so they created the Canada Learning Bond (CLB) to help low-income families offset the high cost of college or university tuition fees. The government also runs a number of other programs that can make college and university significantly more affordable, especially for families on the lower end of the income spectrum.
In this article, we will go over everything you need to know about the Canada Learning Bond (CLB) and how you can get free money from the Canadian Government for your child’s post-secondary education. We will also look at what a Registered Education Savings Plan (RESP) is, why you should have one, and how you can get additional free money towards your child’s post-secondary education in the form of the Canada Education Savings Grant (CESG).
Keep reading to learn:
- What the Canada Learning Bond is
- What a Registered Education Savings Plan is
- What the Canada Education Savings Grant is
- How to apply for the Canada Learning Bond
- How to open an RESP for your child
- And much more
What is an RESP?
A Registered Education Savings Plan (RESP) is a tax-sheltered account that allows parents, guardians, and other persons to invest money for a child’s future post-secondary education. There are a number of advantages that come along with opening an RESP.
First and foremost, being a tax-sheltered account, people contributing to an RESP will enjoy significant tax benefits in that they won’t need to pay taxes on the money contributed to the account while it’s sitting in the RESP. Also, any interest accumulated on the funds in the account is also protected from federal and provincial taxation.
But there are more benefits of opening an RESP for your child. One of the principal reasons to open an RESP is because it allows you to spread out the cost of your child’s post-secondary tuition over many years. In other words, it’s much easier to come up with the tuition money if you start saving when your child is born rather than trying to gather the funds once your child graduates from high school.
Last but not least, the Government of Canada will even contribute a significant amount of “free” money to the RESP in the form of the Canada Education Savings Grant. Assuming that your child attends a post-secondary educational institute, such as a college or university, you will not need to pay back the money contributed to the RESP by the government. This is important to understand, so let’s look at the Canada Education Savings Grant in more detail.
What is the CESG?
The Canada Education Savings Grant (CESG) is a tax-free grant that the Canadian Government will contribute to eligible RESP accounts. The CESG is significant because it can amount to thousands of dollars over the lifetime of the account. In fact, the maximum amount of money you can receive from the CESG is approximately $7,200, which can equal a full semester of university or a whole year of college.
However, it’s important to keep in mind that if one of the account beneficiaries does not attend a post-secondary educational institution, then you will need to repay any portion of the RESP that was contributed by the government in the form of the Canada Education Savings Grant. That said, you’ll have up to 36 years to convince your child to go to college or university before having to pay back the CESG.
What is the Canada Learning Bond?
So, now that we’ve looked at what an RESP is and why it’s a good idea to open one on behalf of your child, and we’ve also gone over the Canada Education Savings Grant, let’s turn to the matter at hand: the Canada Learning Bond (CLB).
The Canada Learning Bond is very similar to the Canada Education Savings Grant in that it’s essentially free money that the Government of Canada will contribute to your RESP account. The main difference between the CESG and the CLB is that the CLB is only available to low-income families.
The aim of the CLB is to help make post-secondary education available and affordable for every Canadian regardless of their economic background, and, as such, it’s a significant amount of money that can offset the rising cost of attending a Canadian college or university.
How Much Can a Child Receive From the CLB?
The maximum amount that the government will contribute to an RESP per beneficiary is approximately $2000, which comes in the form of $500 dollars when the RESP is opened, and an additional $100 per year, every year until the child turns 15 years of age which works out to exactly $2000, assuming that you open the account when your child is born.
It’s also worth noting that the government will contribute that amount for each child listed as a beneficiary on an eligible RESP account. So, if you have three children, that’s potentially $6000 you can receive from the Government of Canada towards their education. Remember also that the CLB is additional money on top of the $7200 per child that the government will contribute to an RESP per beneficiary from the Canada Education Savings Grant (CESG).
Determining If You’re Eligible For the CLB
As mentioned, there are a few requirements that need to be met to be eligible for CLB funding. Namely, the child needs to be from a low-income family. The specific income threshold required to qualify for the CLB changes each year on account of inflation, but as of 2022, it’s approximately less than or equal to $49,020 for up to three children, less than $55,311 for four children, and increases by increments of $6000 for each child thereafter.
In addition to the low-income requirement, your child needs to have been born in 2004 or later, they need to have a valid social insurance number, and you need to have opened an eligible RESP with that child listed as a beneficiary on the account. Assuming that all of these criteria have been met, you’ll be eligible for up to $2000 from the Canada Learning Bond, as well as up to $7200 from the Canada Education Savings Grants, totaling $9200 in what is essentially free money from the Government of Canada towards your child’s future post-secondary education.
How to Apply for the Canada Learning Bond
Assuming that you meet all of the criteria outlined above, the process of applying for the Canada Learning Bond is relatively simple and straightforward. When you open the RESP account, your financial institution will provide you with the necessary documents and forward them on your behalf as part of the process of registering the account with the government.
However, if you are unsure as to whether or not you are receiving the CLB funds, you can always reach out to your financial institution, which will be able to confirm and verify if the CLB funds have been deposited into your RESP account.
What Happens to the CLB Funds If the RESP Isn’t Used?
Any funds deposited into an RESP via the Canada Learning Bond can only be applied to post-secondary education costs, including tuition for colleges, universities, vocational schools, and/or apprenticeships. Unlike the Canada Education Savings Grant, funds contributed from the Canada Learning Bond cannot be transferred to a Registered Retirement Savings Plan (RRSP).
In the event that your child does not attend an eligible post-secondary educational center, then any funds that were deposited into the RESP via the Canada Learning Bond will automatically be returned to the Government of Canada and cannot be withdrawn, transferred, or used for any other purchases or expenses.
Conclusion and Recommendations
Post-secondary education is expensive in Canada, but it’s also perhaps the most important investment you can make in your child’s future. By opening a Registered Education Savings Plan (RESP) for your child when they are born, you can save for their future college or university tuition many years in advance, which can make the expense much more affordable, making it a prudent financial decision.
Considering that the Government of Canada will contribute a significant amount of free money to the RESP over the lifetime of the account via the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), there’s really no reason not to open an RESP. Plus, you will also benefit from having an RESP for your child by enjoying significant tax sheltering, which can lower both your provincial and federal income tax responsibilities.