When your child applies for med school: A parent’s financial guide to raising a young doctor

           

That moment you learn your son or daughter is serious about going to med school: first, great job, Mom or Dad — you’re an inspiration!

Next, a vivid flashback to your own long, intense years in medical school and residency. Finally, you will be shocked by how much tuition costs have increased since your own medical school days.

Your child may be following your lead, but the journey will certainly be more expensive than it was 20 years ago. Fortunately, your professional guidance — as well as your savings — can support a smooth entry into medical school.

Medicine and money are more challenging for this generation

Medicine can look like a family calling. Children of doctors are more likely to follow in their parents’ footsteps. Canadian medical schools have counted as many as 15% of students who have a physician parent.1

But it’s nothing like the old days when it comes to the cost of medical education. Through the 1980s and 1990s, for instance, annual tuition fees at Ontario medical schools hovered steadily at around $2,000 per year. After being deregulated by the province in 1998, fees have increased by about 5% every year since. They’re now the highest in Canada, averaging over $25,000 per year.2

The total cost of medical education in most provinces can easily exceed $100,000, once you factor in living expenses through school and into post-graduate years of residency. Nearly one-third of med school graduates finish their training with $140,000 or more in debt.3

RESPs alone won’t cut it. Here are other ways to save

If you’ve contributed to a registered education savings plan (RESP) in your child’s name, you’ve likely taken advantage of the Canada Education Savings Grant (CESG) that can accrue up to $7,200 of matching funds. (It’s not too late to get some of that grant money retroactively if your child is 17 or younger.)

An RESP is a good start, but your lifetime maximum contribution of $50,000 per beneficiary can only go so far to finance a medical degree.

Consider these other strategies to potentially boost savings growth or systematically transfer money more tax-efficiently for your child’s education:

Tax-free savings account: This can be used to quickly build assets for anything you like, including earmarking them for education. By investing up to $6,000 of after-tax dollars a year,4 savings can accumulate faster since there’s no tax on earnings.

Non-registered investment account: It’s easy to set up a separate account and reinvest returns for your child’s education. You retain complete control of the funds, but all income and capital gains would be taxed in your hands, slowing the account’s growth.

Family trust: You could invest funds on behalf of a student through an account such as an MD Family Trust. You control how assets are managed, and any taxable gains are paid by the beneficiary at their lower tax bracket. This could result in substantial tax savings.

Permanent life insurance policy: This can be a tax-efficient way to transfer wealth to a child for any purpose. Deposits you make on top of the insurance premium have a cash value and may grow on a tax-deferred basis. The policy can be transferred, tax-free, at age 18, for your child to draw from its cash value.

Pre-med math: you don’t have to foot the whole bill, parent!

The economics of med school may have changed, but you can still be a good money mentor to your child by doing the math together and finding creative ways to fill the gaps.

Set your limit. Be realistic about the amount of money you are willing or able to contribute each year as a parent, and for how long, to help determine if this funding will be enough.

Run the numbers. Start planning finances with MD’s Medical School Cost Calculator. You can estimate the cost of tuition and living expenses, set a monthly budget to be drawn from personal savings and RESPs, and pencil in what might potentially be covered by grants or bursaries.

Identify shortfalls. If available funds don’t seem to cover expenses — or provide enough of a cushion for unknowns — other means of financing may have to fill the gaps. It’s common for medical students and residents to borrow funds to get through their training, through student loans or a line of credit.

A student line of credit adapts for the unexpected future

If your soon-to-be med student needs more than you’ve been able to save to cover all anticipated costs, having them apply for a student line of credit provides a great backup plan with lots of flexibility.

One of the most versatile tools in any student’s financial plan, from med school to residency and into practice, can be to establish their own student line of credit. Unlike a loan, which draws an immediate debt, a line of credit is a sum available to be borrowed at a student’s discretion, as needed. It can be used to cover any of the costs of medical school, from tuition to living expenses to all those inevitable incidentals. There’s no obligation to borrow, and interest is accrued only on the amount that’s withdrawn.

Having a long-term education savings plan lets you provide financial security to a student and stay focused on other important priorities, such as retirement goals or the needs of other children or grandchildren.

Your MD Advisor* can review strategies that fit within your financial plans and portfolios as well as recommend any suitable financing options such as a student line of credit.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

1 Collier, Roger. “Medical School Admission Targets Urged for Rural and Low-Income Canadians.” CMAJ, 18 May 2010, www.cmaj.ca/content/182/8/E327.

2 Mercer, Caroline. “Medical Students Protest Steadily Rising Tuition Fees.” CMAJ, 1 Oct. 2018, www.cmaj.ca/content/190/39/E1177.  

3 Association of Faculties of Medicine of Canada.

4 Currently, you can contribute $6,000 per year to your TFSA — and much more if you haven’t contributed in previous years.  

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