The price of higher education

Friday, August 24th, 2018

One of the financial goals that I find most common and top-of-mind for my clients is that of saving and providing for their children’s education. This is especially true for college education and beyond. The Mint paper had a nice graphic to capture this:

In my own experience, the amounts that parents do spend ends up actually being multiple times this figure, particularly if they want to send their kids abroad or to a top-tier college. And, as shown in the chart above, the tuition cost ends up being less than half the amount that is needed as students have to pay for living accommodation, food, travel and laptops etc. These costs can take a toll on the finances of parents, who generally tend to spend out of their current earnings rather than saving ahead of time.

From the Mint article:

A recent report, titled The Value of Education, the Price of Success, by HSBC said the cost of higher education is being financed by parents by sacrificing personal time to earn the extra money needed to send their children to university. The study said one in two parents take up a second job or work for extra hours to get the money needed. HSBC polled 505 parents and 100 students in India for this report, and 10,478 parents and 1,507 university students across 15 countries and territories.

And

About 79% of parents fund their children’s university education from their regular earning rather than savings, said the report. Most parents end up sacrificing on personal time and leisure to be able to back their children’s higher education. They take fewer number of holidays and prefer low-cost vacations. About 64% parents have taken on some kind of debt for their child’s university education

All this becomes especially worrying for parents, given that the cost of education is going up rapidly every year. So what is one to do if they are in such a situation and need to plan for their child’s tertiary education?

1. The first step is not to panic: The ideal scenario is to start planning for this a few years in advance, which gives enough time for parents to accumulate a corpus to pay for their expenses. But for those who don’t, following the next few steps will still be better than no planning at all
2. Saving more:  Parents should set aside a specific amount every month and allocate it to a dedicated corpus earmarked for their child’s further studies. This helps to automatically adjust income spending patterns to accommodate the needs of building this corpus.
3. Creating a plan: It is not that you will need the entire amount at one shot up-front, and therefore parents can break up their financial goals into short medium and long term targets for different needs. This can help to prioritise saving toward what is most important and what can be pushed lower down the ladder.
4. Be realistic in expectations: It is important to take all costs into account when planning for a child’s education. And sometimes, no matter how much we save, we will not be able to meet all the expectations. It is important to involve the children so that they understand the sacrifices that are being made and that they in turn can also cut costs: they can buy used books instead of new ones, can continue using that old laptop instead of buying a shiny new one and so on.  Students can even take part time on campus jobs or internships to supplement income. And, for meritorious students, there are numerous scholarships that can be applied for. All such savings can go a long way.

 

Disclaimer: All the information above is for education use only and should not be construed as advice. Please do your own research and consult a qualified financial advisor who can help you plan for your goals and advise you on the best way to save for them given your personal financial situation.

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