High-earning tech worker wonders how she can finance a $400,000 (U.S.) return-to-school bill

Griselda earns $100,000 a year working in the tech sector and gets an additional $10,000 bonus every year. She says she will have $150,000 (Cdn.) saved by then, but is not sure “what the best way to finance this would be.

“Should I take down a loan for the full amount or just for the balance that I can’t pay myself?” she wonders. “How can I balance such a massive undertaking and planning for the future after this degree? In the meantime, what should I be doing with my savings?”

Griselda’s savings are mostly in Tax Free Savings Accounts (TFSAs), but she says she’s close to reaching her limit.

“Most of my TFSAs are in GICs (Guaranteed Investment Certificates), which I know is not the best vehicle, but I’m not sure what else I can invest in or frankly how to invest,” she says.

Can Griselda pursue her dreams of getting another degree? We asked her to share her expenses with a financial adviser to see what she can do.

The expert: Jason Heath, managing director at Objective Financial Partners.

Griselda has a good job in tech earning $100,000 a year plus a $10,000 bonus. Now she wants to fund another degree that could cost between $300,000 and $400,000 U.S.

So, just to play devil’s advocate here, if we take the midpoint of that range and convert to it Canadian dollars, the cost could be about $475,000 Canadian dollars.

For a high income earner, she would need to earn $950,000 more income over her career pre-tax to offset that cost. And because that income would be earned in the future, but the cost would be incurred over the next couple years, she would need to earn much more than that in fact.

There would be tax savings of about $100,000 on the tuition, but she could give up two years of work depending on the time commitment for the degree, so she would definitely need well over $1 million of future increases in her earnings to come out ahead financially. I appreciate there may be non-financial reasons for Griselda to pursue this degree.

She has $150,000 saved toward this already. That means she may need a hefty loan with associated interest costs to push up the breakeven that much further. She should do her due diligence on potential scholarships from the school, private organizations, and the federal and provincial governments.

The International Scholarships Program of Global Affairs Canada promotes international scholarship opportunities for Canadian students.

Some U.S. schools are already approved for Ontario Student Assistance Program (OSAP) loan funding, but if not, OSAP allows students to apply for out-of-province institution approval. As a Canadian citizen, Griselda may be unable to access U.S. government loans.

If pursuing this degree is imminent, I would be inclined to keep her savings conservatively invested. Stocks can be a great long-term investment choice but can be up or down double digits in any given year. So, they may not be suitable for her potential short-term savings goal.

Her GICs are probably a suitable solution until she figures out if she is pursuing her degree and if nothing else, the rates are pretty good, at least for now.

I would make sure her TFSA is maxed out so that her investment income is tax-free. She could consider withdrawing up to $20,000 from her RRSP under the Lifelong Learning Plan (LLP) as a full-time student.

If she has not contributed this much to her RRSP, that could be a good strategy and would save her about 43% tax on the contributions at her income level too.

If she does not pursue the degree, she appears to be mortgage free, so RRSP contributions to save for retirement would be well suited for a high income earner like Griselda.

Spending in week one: $895. Spending in week two: $1275.

Takeaways: Griselda said the feedback was “generally helpful.” 

She added that she would’ve liked more information on an investment strategy “and explanation of different investment options.”