1. Traditional RESP
Make monthly contributions using the budget you enter. Estimate the future account balance, basic CESG and potential income tax on the grant and growth paid to a student as educational assistance payments.
🔒 Advisor Illustration Tool
Get your personalized RESP vs. Investment Loan illustration
This strategy calculator is used by Pankaj Bhatia, PFA, CHS to prepare personalized education-funding illustrations. It compares a traditional RESP, an interest-only investment loan and a leverage-funded RESP using the same monthly budget, with CESG, annual transfers, taxes, year-by-year returns and a PDF report you can keep.
Please contact Pankaj Bhatia for an illustration with your own numbers.
Worked example
$250 a month for a 6-year-old, 12 years until school
All three strategies use the same $250 monthly budget. Strategy A deposits it into an RESP. Strategies B and C use it to pay interest on a $57,692 interest-only investment loan at 5.2%; Strategy C also moves $2,500 a year from the investment into an RESP to collect the basic CESG. Assumes a 20% effective tax rate on investment gains, 0% student tax, 4 years of study and education costs of $25,000 a year rising 3% a year (about $149,121 in total). Values are net of estimated tax and, for B and C, after repaying the $57,692 loan.
| Flat annual return | A. Traditional RESP | B. Investment loan only | C. Leverage-funded RESP |
|---|---|---|---|
| 6% | $60,809 | $46,717 | $58,473 |
| 8% | $69,007 | $70,069 | $84,375 |
| 10% | $78,437 | $98,697 | $115,950 |
In this example the traditional RESP collects $6,100 of basic CESG on $36,000 of deposits, and the leverage-funded RESP collects $6,000 on $30,000 of transfers. Total loan interest paid in B and C is $36,000, the same as the RESP deposits in A. At 6% the traditional RESP comes out ahead; at 8% and 10% the leverage-funded RESP does, but the loan remains owed in any market. Real returns vary year to year; an illustration can test early downturns. Hypothetical example, not a forecast or recommendation.
Education funding strategies in Canada
RESP contributions vs. an investment loan: understand the trade-offs
An RESP (Registered Education Savings Plan) helps families save for qualifying post-secondary education. Eligible RESP contributions can attract a Canada Education Savings Grant (CESG), and investment growth in the RESP is generally tax-deferred until educational assistance payments are made. Borrowing to invest uses an investment loan to put a larger sum at work immediately, but the loan and interest payments remain your responsibility even if markets fall.
2. Investment loan only
Use the same monthly cash flow to pay interest on an investment loan. Model investment growth, loan repayment and an assumed effective tax rate on positive investment gains. This path does not include CESG.
3. Leverage-funded RESP
Invest borrowed funds, then sell a selected amount each year and transfer proceeds to an RESP, potentially capturing CESG. The model tracks adjusted cost base, estimated taxable gains on sales, RESP transfers and remaining investment-loan principal.
How does this RESP vs. leverage calculator work?
The illustration uses a child's birth date and education starting age, education cost and inflation, a monthly cash-flow budget, investment-return assumptions, the borrowing interest rate and an annual transfer amount. The same budget funds RESP deposits in Strategy A and loan interest in Strategies B and C. Returns can be flat or vary each year to show sequence-of-returns risk. The estimated net education funds are then compared with the projected cost of schooling.
20%Basic CESG on eligible contributions
$7,200CESG lifetime limit per eligible beneficiary
$50,000RESP lifetime contribution limit per beneficiary
0Assumed interest deduction in this model
What the model does and does not include
The original v16 strategy engine estimates basic CESG only using simplified annual caps; it does not establish historical unused grant room, Additional CESG, the Canada Learning Bond, provincial incentives or current plan-by-plan entitlements. Toggle the CESG catch-up assumption only where your issuer confirms unused room. Contributions in the years a beneficiary turns 16 or 17 require qualifying earlier contribution history. A single effective rate approximates taxes on gains and student educational assistance payments; actual tax treatment differs by income type, tax year and beneficiary. Loan interest is modeled as cash paid from the common budget and is not assumed deductible.
The loan rate is user entered and held constant in the projection. It is not a current lender offer. Interest-only loan balances can remain outstanding even after investment losses or withdrawals. Results are hypothetical, not forecasts or guarantees. Real borrowing, tax, RESP contribution and grant eligibility must be confirmed with the lender, plan issuer, CRA and the federal government.
Frequently asked questions
What is the difference between an RESP and borrowing to invest?
An RESP is a registered education savings account that may qualify for government grants. Borrowing to invest means taking on repayable debt to buy investments. The potential higher initial investment must be weighed against interest costs, taxes and investment risk.
Can I deduct interest on a loan used to contribute to an RESP?
No. CRA states that interest on money borrowed to contribute to an RESP is not deductible. Borrowing for other investments involves separate tracing and income-purpose tests; this calculator does not assume any interest deduction.
How much CESG can my child receive?
Basic CESG is generally 20% of eligible contributions, normally up to $500 a year, or potentially $1,000 with unused basic CESG room. Lifetime CESG is limited to $7,200 for an eligible beneficiary. Additional CESG and other incentives may apply but are not calculated here.
What happens to CESG eligibility at ages 16 and 17?
Special earlier contribution-history conditions apply. Before the end of the year the beneficiary turned 15, generally at least $2,000 must have been contributed and not withdrawn, or contributions of at least $100 in four separate earlier years. Confirm with the RESP promoter.
Does the investment loan get paid off automatically?
No. The model assumes an interest-only loan; payments cover the interest, and outstanding loan principal is subtracted from the final investment value. Loan repayment and the ability to sustain payments remain material risks.
Does a higher projected net value mean it is the best strategy?
No. The illustration ranks modeled values only. Financial suitability depends on emergency cash reserves, income stability, risk tolerance, debt servicing, taxes, account eligibility and the child's education timeline.
Can I get my own education-funding illustration?
Yes. Pankaj Bhatia can send your illustration as a PDF report, an email or WhatsApp summary, or a private link that opens your scenario for a limited time.
Related calculators and official references
Sources: Canada Education Savings Grant amounts and eligibility; CRA RESP contributions and borrowing interest; RESP taxes and transfers.