Education inflation - Finance matters

These annual increases have come to be anticipated, but soon many parents will find themselves awakening to the chilling fact that in a few short years, when packing their children off for their first years of university, the cost increase will be staggering.Most expats come from backgrounds where university education is the norm rather than the exception. With rising costs of education outpacing inflation, it makes sense to start early to think about how you will be able to afford to send your child to university without requiring them to take loans they may be repaying into their 30s and 40s.Recent US figures show the average cost of private four-year tuition is around $25,000 per year, with top-tier universities closer to $40,000. British families, by comparison, will face much lower tuition costs, roughly £3,000 per year for a standard three year course, being repaid after graduating. Tuition charges are fixed at least until the 2009 review when many suggest that fees would have to at least double to keep up with rising costs.
While some may see the UK, or even Hungary which has even lower fees, as a bargain versus study in the US, other costs will affect everyone equally. Housing, books, food, activity fees, entertainment, returning home for holidays and special events, all these costs could easily add on another £10,000 per year. Clearly, even free education is not exactly free, especially when parents live in other countries, or even other continents.
These costs are meaningless in comparison with the possible advantages. Studies show that university degrees holders will out-earn their counterparts with only a high school degree by more than 60%; over a lifetime this will equate to more than $800,000.


Top-notch


Attending top universities will afford your children not just with a top-notch education; they will forge relationships with those who will become the leaders of tomorrow, as well as access to extensive alumni networks.
Sacrifices made today for a university degree will be greatly over- shadowed by the future earnings benefit. The question remains, how will you be able to afford this investment? The two most common answers are usually “Pay Now” or “Pay Later.”
Depending on circumstances, “Pay Now” may mean emptying savings accounts, dipping into retirement funds, remortgaging the house, or having you child work his or her way through university rather than focusing on studies.
“Pay later” suggests that this expense is treated similar to a home mortgage, borrowing today, to repay tomorrow. But do you want your children to start their adult lives already in debt?
Merit-based scholarships and grants are the best way to pay for education costs. If your child qualifies, he or she will never have to repay this aid. Qualifying takes lots of hard work and aid may be withdrawn if marks at school decline. Though there are a number of scholarships available, since they are essentially ‘free money,’ competition is fierce, and some may be unattainable if they are also tied to a family’s economic need.
Another idea is to save now for more choice later, so you are not relying on outside sources to meet costs. Putting together a suitable strategy today, where a portion of income is set aside at regular intervals and invested in a plan which will grow to meet the cost of your children’s university, could mean not putting unneeded financial pressure on your family, or having your children start professional lives careers already in deep debt.
As parents send children off for the first time to university this fall, most will be filled with an enormous sense of pride; for some this will quickly be overcome by fear and panic once the bills start arriving in the post.
Giving your child one of the greatest head starts in life should not mean future financial distress, and early planning can help you avoid this. Speaking with a professional financial advisor today will help understand your options, as well as steps to achieve these goals.

Liam Crow is a former option trader at the Chicago Board of Trade and Chicago Board Options Exchange. He graduated with an MBA from Corvinus University of Budapest and works for Andrew Jackson at Capital Growth Solutions, Budapest’s oldest offshore financial consultancy, assisting clients with financial solutions worldwide. This column is exclusive to The Budapest Sun.


24.09.2008