A scholarship plan is an investment fund that pools your money with that of other families with children of the same age. The scholarship plan dealer’s trustee manages the pool. When the plan matures, each child is eligible to receive Educational Assistance Payments (EAPs) towards tuition.
Before you sign up for a plan, it’s important that you thoroughly understand it, including all of its benefits and limitations.
Ask the person selling it to you for disclosure, like the Plan Summary document, before you invest. This short, concise document provides investors with key information in a simple, accessible, and comparable format.
You should also ask questions about payout options, risks, and penalties for leaving the plan.
What Risks do They Have?
Scholarship plans usually invest in low-risk, fixed-income investments. The main risk with scholarship plans is that your family’s financial or children’s situation may change.
There are often significant costs if you drop out of the plan, miss a contribution or a deadline, if your children do not go to a qualifying school or program, or if your children do not complete their programs. To mitigate risk, you may have the option to transfer money to another child or simply leave the plan open until your child decides to further their post-secondary education.
Can You Sell Them Easily?
When you buy a plan, you have a 60-day period to change your mind. Think carefully during that period whether this is the right plan for you. Scholarship plans have high upfront costs and after the 60-day period there are large penalties for leaving the plan. You cannot sell your investment in a scholarship plan if you decide to leave it.
What are the Associated Costs?
Scholarship plans have high front-end fees. You will not be reimbursed for these fees if you drop out of the plan. You can also expect to pay enrolment, administration, trustee, and other fees for your scholarship plan. Ask questions and find out any costs that may apply before you invest.
Scholarship Plans in Relation to Other Registered Education Savings Plans (RESPs)
For more information on other types of RESPs, visit our Types of Accounts page.