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This section addresses program relevance by examining access to PSE and the expectations of Canadians regarding what level of education their children will attain, the cost of the education, and how the costs will be covered. This section also examines how RESPs compare to other savings vehicles.

4.1 PSE Accessibility

The literature review indicates that Canadians have a strong interest in PSE.

Canadians' rate of participation in and attainment of PSE ranks among the highest in the world.⁵ This is likely a reflection of the fact that two-thirds of all new employment opportunities require more than a high school diploma (HRDC, 2001).

A number of factors act as potential barriers to PSE participation.

In the literature, a number of inter-related factors have been identified as affecting PSE participation:

• High school experience : Students who prematurely leave secondary school education or perform poorly experience difficulty obtaining acceptance to a PSE institution. They also are less prepared to succeed when learning opportunities are presented later in life (HRDC et al., 2001: 9).
• Education costs: PSE tuition fees have more than doubled since the early 1980s (Plager, 1999; Bouchard and Zhao, 2000; and Juror and Usher, 2002). The indirect costs of education (supplies, equipment, accommodation, food) have also increased over that time. Research has shown that rising education costs differentially affect low-income groups (Bouchard and Zhao, 2000). Views on the implications of these increases in the cost of PSE education on PSE participation are mixed.
• Decision to pursue PSE : Looker (2001) cites research (Foley, 1999; and Butler,1999) to conclude that key to PSE attendance is being able to convince students of the benefits of attending PSE in terms of higher earnings. Potential reasons for deciding not to participate in PSE include: a desire to "take time off"; indecision; and a simple lack of interest (Foley, 2002).
• Finances and socio-economic background : Foley (2002) finds that high school graduates least likely to pursue PSE include those with a lack of adequate funding. Looker (2002) and Bowlby and McMullen (2002) confirm that one's "financial situation" is a major barrier to PSE. Usher and Junor (2002) show that students' financial situation predominates as a perceived barrier to attaining the desired level of education among high school graduates. Research further suggests a widening socio-economic gap between individuals attending university and those who do not (Looker and Lowe, 2001; Hemingway, 2001; Anisef et al., 2001, Knighton and Mirza, 2002; and CAUT, 2000). This is confirmed by Junor and Usher (2002) who report that 56 percent of 18 to 21 year olds from the lowest income quartile attended PSE in the period 1993 to 1998, compared to 70 percent of higher income students. Disparities in college participation by parents' income level are not as apparent.
• Parents' education : Butlin (1999) finds that the higher the parents' education is, the more likely they are to encourage their children to attend PSE. Knighton and Mirza (2002) find that one or both parents' having a post-secondary education (particularly a university education) is a powerful predictor of their children's participation in PSE, and in fact reduces the effect of household income on PSE participation.
• Distance from university : Students who live closer to universities are more likely to attend university, compared to those living further away. The latter must bear the added living and moving costs associated with leaving home to attend school (Frenette, 2002). Students living further from universities are more apt to attend local colleges.

Informants were asked to identify the potential risks and barriers to attending PSE. The most frequently identified barrier (by 17 of the 20 informants) was the cost of education. Barriers related to distance, motivation and attitude were each identified by six informants. Three-quarters of the informants identified low-income earners as a population segment facing greater barriers to PSE.

Student loans and debt load rose over the last two decades, and tend to be greater for students from low-income families.

Loans are one means of improving access to PSE and their use rose appreciably over the last two decades. Rising education costs is one reason for this rise (Junor and Usher 2002). However, the rate of growth of new borrowers slowed toward the end of the 1990s, in tandem with the slowing of tuition fee increases.⁶ Similarly, while the amount borrowed by students rose over time (Plager, 1999), by the end of the last decade, the average loan amount had actually fallen somewhat from a few years earlier (Junor and Usher 2002). Student loans are larger for students from lower-income families compared to those in higher-income groups, both in relative terms (CAUT, 2000) and absolute (Frenette 2002).

The average level of student debt rose steeply over the 1980s and 1990s (Junor and Usher 2002). However, Finnie (2001: 13 and 15) reports that two years after graduation, individuals had paid back an average of 40 percent of their student loan debts, and only 10 to 15 percent of all graduates reported difficulties with re-payments. Still, the incidence of student indebtedness is much higher among students from the lowest income households.

4.2 Expectations for PSE Participation

Both subscribers and non-subscribers have high expectations for the education of their children, particularly in the case of parents with higher educational attainment and incomes.

Both subscribers and non-subscribers surveyed have high expectations for the education of their children, with most (96 percent) subscribers indicating that it is likely their beneficiary would attend PSE (3 to 7 on a 7-point scale) and most (90 percent) non-subscribers indicating that they expect their child to attend PSE⁷ (as shown in Table 4.1). This finding is corroborated by the 1999 SAEP analysis results, which indicate that 86 percent of the parents who expect their children to attend PSE.

With respect to the level of PSE, however, expectations differ between subscribers and non-subscribers. Parents⁸ are most likely to expect their children to attend university, but a greater proportion of subscribers feel this way than non-subscribers (78 percent versus 60 percent) (as shown in Table 4.1). Non-subscribers were less likely to respond to the question on children's future PSE than subscribers (12 percent and 5 percent respectively did not respond to the question).

For both subscribers and non-subscribers, the characteristics associated with parents' higher PSE expectations for their children include having a higher education themselves and earning higher incomes. As indicated in Exhibit 4.1, the proportion of subscribers expecting their beneficiaries to attend university is considerably higher among those who themselves have completed university. The fact that subscribers have higher PSE expectations than non-subscribers is likely related to the fact that subscribers are more likely to have attended university than non-subscribers. For example, 47 percent of respondents in the subscriber survey had attained university or professional certification of some kind, whereas only 24 percent of respondents in the non-subscriber survey reported this level of educational attainment.

4.3 Expected Cost of PSE

Although some subscribers and non-subscribers have fairly realistic expectations of the cost of PSE, there appears to be uncertainty among a large proportion of both groups.

Subscribers and non-subscribers who identified themselves as parents were asked what they thought the total annual per-child cost of PSE (including tuition, books and accommodation) would be when the child enters PSE. Forty-four percent of subscribers and 32 percent of non-subscribers expect the cost to be in the range of $10,000 to $25,000 per year per child. Evidence indicates that the average cost of attending a PSE institution is currently about $12,000 a year.⁹ Higher proportions of non-subscribers than subscribers expected the cost to be under $5,000 per year (27 percent and 18 percent respectively). This is likely attributable to the fact that non-subscribers are more likely to expect their children to attend college than subscribers (as shown in Table 4.1). Large proportions of both groups (18 percent of subscribers, and 26 percent of non-subscribers) could not or did not provide a response to the survey question.

The expected cost of PSE rises with the income and education level of individuals in both groups. The expected cost was also higher for parents of younger children, reflecting the longer period over which tuition fees could be expected to rise. Quebec residents generally provided lower estimates of the annual cost of PSE, reflecting that province's publicly funded college system (CEGEP) and lower university tuition fees for Quebec residents.

4.4 Saving for and Covering PSE Costs

Less than half of Canadian households with children under the age of 18 had saved for the future education of their children, with some groups putting aside more than others.

Results from the SAEP survey indicate that in 1999, 17 percent of households, and 45 percent of those with children under 18 years of age, had savings for PSE. The potential for an increase to occur in the percentage of households saving for PSE is plausible in light of the fact that 30 percent of the non-subscribers who are not saving now expect to save in the future.¹⁰

Multivariate analysis based on SAEP data indicates that the incidence of savings for PSE is higher for those with a university education (compared to those with less than a high school certificate), those with annual household income of $80,000 or more (compared to those with less than $20,000), and residents of the Atlantic and the Prairie Provinces (compared to Ontario residents).

Subscribers are putting aside more for their children's PSE than non-subscribers (as shown in Table 4.2). In 2001, 50 percent of non-subscribers put aside $1,000 or less and only nine percent put aside over $5,000, compared to 26 percent and 21 percent, respectively, in the case of subscribers.¹¹ The difference is likely due to the fact that subscribers expect their children to attain higher levels of PSE, which would involve higher costs. Not surprisingly, higher-income Canadians put aside more than lower-income Canadians. About one quarter (23 percent) of non-subscribers and 8 percent of subscribers did not provide a response to the question about how much they put aside.

Most subscribers and non-subscribers do not expect their savings to cover all of the cost of their children's PSE, and there appears to be uncertainty and misconceptions in this area among both groups.

Both RESP subscribers and non-subscribers indicated that they expect to cover just over half (average = 54 and 57 percent, respectively) of the costs of their children's education, and just over one-quarter (24 and 27 percent, respectively) expect to cover all of the costs (as shown in Table 4.2).¹²

There is a large amount of uncertainty about how much one's savings will cover the cost of their children's PSE. This is particularly true among non-subscribers: 22 percent of non-subscribers could not or did not respond to the question, compared to 13 percent of subscribers.

Parents expect their children to cover a large part of PSE costs not covered by their savings. Subscribers expect their child(ren) to make up the difference mostly through a student loan or scholarship/bursary (41 percent and 39 percent, respectively). Non-subscribers expect their children "to pay" (presumably using their own funds) or to obtain a student loan (32 percent and 26 percent, respectively). The expectation that students will make up the difference between parents' savings and the actual cost of PSE was most prevalent in households with low family income. The fact that subscribers are more likely to expect their children to obtain student loans than non-subscribers is counter-intuitive to the fact that subscribers have higher incomes than non-subscribers and that government student loans are not available to students from higher-income households.

Finally, most informants said there is a need for government involvement to encourage Canadians to save for the PSE of their children. However, about half of the informants (including three who said the government should not be involved at all) said that saving for PSE should also be the responsibility of individuals, since they benefit from PSE (as does the economy).

4.5 Role of RESPs in Savings for PSE

The CESG is a key program in Canada designed to encourage adults to save for the future PSE of children through a combination of tax-sheltered income-earning savings and grant.

In Canada, there is a range of devices enabling PSE participation, including repayable government and private student loans and study grants, and non-repayable government and private scholarships, grants and bursaries. These mechanisms are directed at youth, typically in disadvantaged positions (e.g., Canada Study Grants and interest relief under the Canada Student Loan Program), and seek to facilitate their participation in PSE at the time of entry or assist in debt repayment after completion of PSE. However, none of these mechanisms duplicate the CESG and RESPs which encourage adults to save for the future PSE of children through a combination of tax-sheltered income-earning savings and a 20 percent grant. Informants were unable to identify other existing programs and/or mechanisms that would be more effective/efficient at achieving the program's objectives.

The evidence indicates that parents saving for their children's PSE favour the use of RESPs, although there is room for further take-up among parents.

Results from analysis of the 1999 SAEP data indicate that 6.5 percent of Canadian households had savings in an RESP in 1999. For parents with children under 18 years of age, the rate was 17.7 percent.¹³ RESPs appear to be most favoured as a means of saving for PSE among parents who save for their children's PSE. Research based on the SAEP indicates that parents who saved for their children's PSE were most likely to use RESPs or in-trust accounts: 40 percent of children have parents who saved using RESPs and 35 percent of children have parents who saved using in-trust accounts (Statistics Canada 1999).

According to the evaluation survey, non-subscribers saving or expecting to save for the PSE of children indicated that regular savings accounts (32 percent) and RESPs (25 percent) are the predominant savings vehicles they are/will be using (as shown in Table 4.3).¹⁴ Among non-subscribers who were aware of the CESG, RESPs rise in prominence and savings accounts decline (i.e. both were mentioned by 29 percent of respondents as the savings vehicle they use or expect to use to cover PSE costs). Generally speaking, savings accounts are preferred by those in lower education and income groups, RESPs are preferred by the university-educated, and mutual funds are preferred by those in higher-income groups. Non-subscribers (19 percent) are more likely to use RRSPs to save for children's PSE than subscribers (7 percent).

The survey evidence indicates that few subscribers use other means to save for children's' PSE and, among those who do, RESPs are seen by the majority as the best way of saving for PSE. About a third (35 percent) of subscribers use or expect to use other vehicles to save for their beneficiary's(ies') PSE in addition to RESPs (as shown in Table 4.3). Subscribers most frequently supplement their RESPs with mutual/segregated funds and regular savings accounts (28 percent and 27 percent, respectively). Note that few (6 to 7 percent) mentioned RRSPs, stocks, and registered scholarship trusts and in-trust accounts.¹⁵ Users of supplementary vehicles are most prevalent in higher income groups, as would be expected. Subscribers using other means expect their RESP(s) to cover four times the proportion of the cost covered by other means. The largest proportion of subscribers (72 percent) ranked RESPs first in importance in covering PSE costs compared to other savings vehicles used¹⁶ (as shown in Table 4.3). Next in importance were mutual/segregated funds, the first choice of just one-third of subscribers (34 percent).

Footnotes

5	See: "Review of the Canada Student Financial Assistance Programs, 1998-99", HRDC, http://www.hrdc-drhc.gc.ca/hrib/cslp/common/c/publications_e/98-99ANNUALREPORT.PDF, and Education Indicators at a Glance, Education Indictors, 2001, Organization for Economic Co-Operation and Development, 2002. http://www1.oecd.org/publications/e-book/9601051E.PDF
6	See http://www.hrdc-drhc.gc.ca/student_loans/c/statistics/borrowers00.html for more information.
7	Note that the question on the subscribers survey was changed from the non-subscribers survey in the interests of obtaining more useful information than a simple yes/no answer.
8	The question in the subscribers survey was asked of parents only. But results in the non-subscribers survey indicate that a similar proportion of Canadians (not just parents) have these expectations.
9	See the Student Financial Planner on the canlearn interactive page of the National Student Loans Service Centre website, HRDC: http://www.canlearn.ca/financing/planner/clindex.cfm?langcanlearn=EN
10	Results from the 2002 SAEP were not available to indicate what the current incidence of PSE savings is. Results from the evaluation non-subscriber survey indicate that about 34 percent of non-subscribing parents have PSE savings of any kind in 2002. But, the proportion of all parents (RESP subscribers and non-subscribers) with PSE savings cannot be computed for 2002 because the proportion of parents with RESPs for 2002 is not known.
11	For subscribers, the amount contributed was taken from the CESG administrative data; otherwise, the reported amount in the survey was used.
12	All non-subscribers were originally asked this question, but results shown here are for parents only, to be consistent with the subscriber survey which asked only parents this question.
13	According to the linked CESG/LAD file, 6.2 percent of taxpayer parents of children under 19 years of age contributed to an RESP in 1999. The large difference between this estimate and that based on SAEP data (17.7 percent) are associated with the facts that taxpayer data are individual-based and aggregated to a family level if data permit; also, single parents and lower income households, which are less likely to contribute to RESPs, are over-represented in the CESG/LAD database.
14	It should be noted that many of these savings vehicles are not, of course, mutually exclusive (e.g., contributions to RESPs could be invested in mutual funds) but it was determined that it would be difficult in a telephone survey to get respondents to distinguish between vehicles being used within RESPs and those used outside RESPs.
15	Note that the in-trust accounts were more prominently mentioned in the 1999 SAEP, as cited above.
16	All subscribers who mentioned the respective savings vehicle were asked to rank all vehicles mentioned (including RESPs), in terms of importance in covering PSE costs. In a sense, this underestimates the proportion saying RESPs are first, as those using only RESPs were excluded from these computations and they by definition would have ranked RESPs first.