Long-term education funding needs an early start
August provides a little respite from the doom and gloom by providing the newspapers with jolly photo opportunities of delighted Leaving Certificate students examining their satisfactory results, and of course, the Roses going through their paces at the Festival in Tralee.
Since many of the clever and talented girls in the latter event were once excited Leaving Cert envelope rippers and many are now third level graduates, it is worth considering what it takes financially to pursue a college or university career. Aside from the obvious costs involved in going to college for three or four years, especially for those students who cannot live at home, the most serious consideration is how much it is going to cost in the future.
The Union of Students in Ireland claim that it will cost an average of €7,700 a year to attend third level in 2011. The student registration charge alone is €2,000 - a sum that is likely to increase until the government makes a final decision about re-introducing fees.
Some commentators suggest that at the very least, the current charge will increase, perhaps by €500 or even €1,000 increments until 2014, after which the Irish government will, under the Croke Park agreement with the public sector unions, be able to review public sector pay. At that stage, even it if does re-introduce actual third level fees, it may also be able to adjust university pay rates downwards: 80% of the €1.8 higher education budget is allocated to the pay of teachers and administrators. (The USI believe their teachers are overpaid, compared to other countries, but in the meantime, the Hunt report into higher education says the overall third level budget needs to go up by €500 million a year.)
While the politicians and teachers and student's unions argue about the merits of high pay rates versus low student fees, parents and young people who want a third level education not just this year but in coming years, need to cast an unemotional eye over how to fund what is going to be an expense that is only going to get tougher to finance as personal incomes fall, tax rates rise and other public services get curtailed, which will then have to be funded by the individual user.
If you, the parent, have not already made provision for your son or daughter's collect expenses, you only have short term options:
- Grants and bursaries: check here www.studentfinance.ie to see if your child qualifies for income and means tested assistance;
- Income, yours and theirs: Part-time jobs are very hard to find, but it may come down to the college-going child having to find some employment to help pay for books, equipment and other day to day costs (Most students, somehow, find ways to pay their own bar bills);
- Parents with their own businesses can hire their children part-time to help offset college expenses they would otherwise pay out of their own incomes. Speak to your accountant.
- Tax relief: Only available for post-graduate tuition expenses at qualifying third level institutions (Some commentators say that going forward, lower income parents will hopefully get some tax relief, even at the standard rate, if and when market-priced tuition fees return);
- Personal loans: Students taking the usual higher income professional degrees (medicine, veterinary, law, engineering, pharmacy, accountancy, etc) should still qualify for personal loans, especially if they secure parental guarantees. Both parties should speak to their respective banks and shop around, if they can, for the best rates and repayment terms which. Short term - usually one year with a 1% or 1.5% interest rate reduction - should also still be available, say the banks, but these loans are usually expected to be repaid through summer employment.
- Credit cards: At typical interest rates of 18% or more, you don't want to resort to using short term credit.
The ideal way to fund third level education - and many parents were able to send their children to private secondary schools when there were no third level fees - is to start saving and investing from the moment they are born.
Child benefit - even at €140 a month - that achieves a 3.5% annual return for 18 years (say in a tax-free post office product) will return a fund worth €42,042. Adjusted for inflation of 3% and DIRT (say, averaging 25%) and your fund will buy only about €31,000 worth of those tuition fees and expenses.
If you have 18 years in which to plan how to pay for your child's third level education, you have much more leeway to find a combination of savings and investments that should, at the very least, exceed deposit and inflation rates.
This is probably not the best time to be trying to identify an investment fund or asset (except short term, safe, deposits, gold - for insurance purposes), but many advisors say that the recent market collapse will be providing opportunities to buy blue chip, world dominator stocks or funds at very good value. These represent some of the biggest, richest companies in the world (like Apple, Intel, Microsoft, Exxon, Coca Cola, Walmart, etc) that pay consistent dividends, even as their share prices may go up and down.
Next week, top advisors say where they would invest their children's education fund.
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