What Happens to Unused RESP Money If a Student Doesn't Finish School

Your contributions always come back

Whatever you put into the RESP as the subscriber returns to you tax free, regardless of what happens to the beneficiary's education plans. This part of the plan is never at risk.

Government grants get repaid

The Canada Education Savings Grant, the Canada Learning Bond, and any provincial grant added to the plan belong to the beneficiary only if used for qualifying education. If the plan closes without the beneficiary enrolling in a qualifying program, the promoter sends these grants back to the federal or provincial government. Grant money never becomes yours to keep.

Option 1: name a new beneficiary

If you have another child, name them as a replacement beneficiary, especially in a family RESP plan built for exactly this situation. The contributions and growth carry over, and grants often carry over too when the new beneficiary is under 21 at the time of the switch. Check the specific conditions with your promoter before you assume every dollar transfers, since rules differ between a family plan and an individual plan.

Option 2: transfer the growth to your RRSP

Without a new beneficiary, the investment growth on the plan, not your contributions and not the grants, moves to your RRSP as an Accumulated Income Payment, up to $50,000 over your lifetime, tax deferred. To qualify:

• You need enough unused RRSP contribution room

• You are a Canadian resident

• The RESP has been open at least 10 years and every beneficiary is over 21 and not currently eligible for education payments, or every beneficiary has died, or the payment happens in the plan's 35th year

Grants never transfer to an RRSP. They go back to the government regardless of what happens to the growth portion.

Option 3: take the money out and pay the tax

Without RRSP room, or if you want the cash instead, take the growth out directly as an Accumulated Income Payment. This counts as regular income at your marginal tax rate, plus an additional 20 percent tax. Quebec residents pay a further 8 percent on top of that, for a combined additional tax of 28 percent.

Family plans versus individual plans

A family RESP plan names multiple beneficiaries related to you by blood or adoption, such as siblings, and lets you shift unused money between them without much friction. An individual plan named for one child needs a formal change of beneficiary, and grants move with the new beneficiary only if that beneficiary is under 21 at the time of the switch.

Provincial grants follow the same rule

Programs like the British Columbia Training and Education Savings Grant or Quebec's education savings incentive follow the same repayment logic as the federal grants. Without qualifying use, the provincial grant returns to that province, separate from your contributions and separate from the federal AIP transfer rules above.

There is no rush

Most RESPs stay open up to 35 years after opening, so a gap year or a temporary change of plans does not force a decision. Confirm your specific options with your promoter, and see the Government of Canada RESP page for the official rules on grant repayment and RRSP transfers.