On Thursday my husband will get in our car and drive to university for the first time in almost ten years. He’s excited and a little bit nervous. He hasn’t had to worry about deadlines and papers in nearly a decade it’s going to take some time to adjust. But one aspect of school that he won’t have to worry about is how we’re going to pay for it.
His lack of worry isn’t because we saved up thousands of dollars to pay for his schooling in cash. I wish that was the case, but we spent all of 2017 paying off our Subaru Crosstrek, which left precious little time to save for upgrading his education, especially since said education will clock in at a cool $16,550 or so.
His lack of worry also isn’t because he applied for student loans. Nova Scotia Student Assistance is currently offering 0% interest loans to students for post secondary education, which would have been a great way to finance his education (who doesn’t love 0% interest?) – if he’d qualified. Unfortunately, my income is too high, and our financial assets are too numerous to qualify. When he inputted our information into the prequalifying calculator, it spit out a big fat $0.
No, my husband isn’t worrying about how we’re going to afford his education because we are using the Lifelong Learning Plan (LLP) to pay his tuition.
What is the Lifelong Learning Plan?
If you’re like me, the LLP is something that has been at the periphery of your consciousness for a while. I knew that it had to do with borrowing money from your Registered Retiremnt Savings Plan (RRSP) to pay for school, but that’s as far as my knowledge went until about six months ago. Here are the details in a nutshell:
The LLP allows you to withdraw money from your RRSP to finance full-time training or education for yourself, your spouse, or your common-law partner. You can withdraw up to $10,000 per calendar year, for a maximum of $20,000.
To participate in the LLP the student (in this case my husband) must be enrolled in a full-time program. The program must be considered a qualifying educational program, and the educational institution must be on their designated list. The RRSP owner (in this case, me) must be a resident of Canada. You can use the LLP as many times as you want over your lifetime, but you have to bring your repayment balance back to zero each time.
Since I have about $32,000 in my RRSP right now, this became the perfect source of funds to finance his education. The best time to save money is when you don’t need it, and that couldn’t be truer now.
The best time to save money is when you don't need to, and that couldn't be truer now.Click To TweetHow to Apply for the Lifelong Learning Plan
Applying for the Lifelong Learning Plan was very straightforward. The only thing you need is the Form RC96 – Request to Withdraw Funds From an RRSP. You have to fill out this form for each withdrawl. You are responsible for filling out Part 1, and your RRSP issuer fills out Part 2. Part 1 requires some basic information including social insurance numbers, and the RRSP account number that you want to withdraw from.
Once I had Part 1 filled out (I chose the maximum of $10,000 to withdraw), I needed to send the form to my RRSP issuer to fill out Part 2 and process the form. In my case, I keep my RRSPs with Tangerine. A quick call to their helpline yielded an email address to send the form to (tangerineinvestmentfunds@tangerine.ca). The whole process was so simple it felt suspect – it couldn’t really be that easy to use money from my RRSP for continuing education, could it?
I emailed the form and, sure enough, five business days later, $10,000 appeared in my chequing account. Boom.
What Can I Use My Lifelong Learning Plan Money For?
The LLP is very flexible. You don’t need to use the money specifically for tuition, you can use it for anything. Once the funds are released, they are yours to do with what you will. You could use the money to pay your tuition, to fund your child’s daycare while you are at school, or even pay rent.
In our case, a little over half of the $10,000 was deposited into a high-interest savings account with EQ Bank. Yielding 2.30% interest, this is the best place for any money I don’t need right away. I kept $4,137 to pay the first semester’s tuition. We’ll use the rest of the money to pay the second semester’s tuition, but in the meantime it’s going to chill with EQ Bank and earn interest.
How to Repay the Lifelong Learning Plan
You don’t need to repay the LLP right away. In fact, you don’t need to make any repayments until two years after the government of Canada determines you are no longer a student. Once you enter the repayment period, you need to pay off one tenth of the balance every year until it is paid in full.
So, for example, if you borrowed the full $20,000, you would have to pay back $2,000 per year starting two full years after you graduate.
To make your repayments, all you have to do is contribute to your RRSP. When it comes time to file your taxes for that year, you’ll declare the portion of your RRSP contributions to go towards your LLP repayment.
How We’re Going to Repay the Lifelong Learning Plan
In our case, I don’t love the fact that using the LLP is going to decimate our retirement savings, so repaying the amounts that I borrowed as soon as my husband is graduated and earning an income will be priority one. I’m not sure whether I’ll declare all of the RRSP contributions as LLP repayments and just be done with the repayment process or just let those RRSP contributions ride to reduce my taxable income.
What I do know is that there is no way I’ll make it through the two year grace period without repaying the $20,000 in full. Repaying it as quickly as possible will reduce the amount of compound interest we miss out on by taking this money out of the stock market and investing in my husband’s education instead.
Have you used the Lifelong Learning Plan? Why or why not? I want to know!
Photo by Chris Benson