The days of most expats having their children’s school fees paid for them are gone and even if you have an education allowance as part of your salary package it will stop on finishing secondary school. If they then want to go on to tertiary education, whether that is university, college, or vocational study someone has to pay and the burden is likely to fall on to parents.
Have you thought about how much may be required, or how to fund the additional study that you children may want, or indeed may need, in order to do what they want in life and be successful?
Statistics show that over their working life someone with a bachelor’s degree in the USA will earn, on average, almost twice as much as workers with a high school diploma. Source: US Census Bureau
The cost of tertiary education continues to increase year on year and it is likely that paying for your children’s higher education will be a significant cash outflow from your personal finances.
As with any major investment, in this case an investment in your children’s future, it is always better to use these interim years planning and investing rather than hastily drawing on your savings after your child has been accepted into a university.
It may seem like a long way off if your children are still very young but the years go fast and the costs will only increase.
If you start saving and investing now you’ll find the burden a lot lighter down the line.
What is higher education going to cost?
This is going to vary depending not only on where your child studies, but what they study. Universities in the UK and colleges in the US are the most popular options but there are currently over 30,000 young adults in higher education in the UAE and more branches of known universities open each year so this is becoming a viable option.
In the US college fees vary widely from around $13,000 a year for a public college to up to $35,000 for an ivy league one. US college students often live on campus and living costs can start from $10,000, although this will be higher in the more expensive states and locations. Most courses are four years so you could easily be looking at over $150,000 and that’s in today’s money. US colleges tend of have a significant number of scholarships but these are harder for overseas students to obtain.
UK university fees have increased significantly in recent years and if you are living outside of the UK when applying, chances are that the full international fees will apply. In the 2022/23 academic year this will range from £10,500 to up to an eye-watering £38,000 a year.
Note that the decision to award ‘home status’ is entirely at the discretion of each admissions department. If home status is granted the fees will be lower.
For England and Northern Ireland, the maximum annual fee is £9,250 and in Wales it is £9,000. Scotland has far lower fees for home students than the rest of the UK and these are largely means tested. Another advantage of having home status is the ability of the student to apply for a government supported student loans which only need to be repaid after leaving university.
Fees in the UAE vary widely, from AED 40,000 up to AED 80,000 a year for most academic courses.
In each case, you also need to consider living costs, travel costs and additional expenses such as text books and equipment. In the UK, the cost for a standard three-year course, at international rates and factoring other costs could easily amount to £65,000. Study something like medicine or law, or take a four-year course and the total cost could double. Even if you were lucky enough to get home status in Scotland where there are no undergraduate fees, there is still rent and the cost of living to factor in.
How can you make the financial pressure easier?
No matter where your child studies, the fees and costs are going to be substantial and rather than having to pay out of income, at a time when you are probably wanting to focus on your own retirement provision, it makes sense to start setting money aside as early as possible.
A recent survey from an international bank shows that up to 74% of parents were paying towards their children’s higher education out of current income. This not only affects your own financial future and your ability to save money, but also restricts a currently lifestyle if sacrifices have to be made.
If you plan ahead life can be made easier all round and even if you don’t manage to cover the full cost, a significant contribution can be made.
UK Home Status Rules
The general rule is that British, Irish and other European Union citizens qualify for home student status only if they have been ‘ordinarily resident’ in the UK for three years prior to the start of university. From Autumn 2021 EU citizens will lose their home student status and will have to pay the higher international tuition fees.
In order to be classed as a home student, these are the critieris that need to be met on the first day of the first academic year of the course:
- You are settled in the UK (this means there is no immigration restriction on the length of your stay).
- You are ordinarily resident in the UK, and have been for the full three years before the first day of the academic year. (Ordinarily resident means that your main home is in the UK, and you are choosing to live in the UK.)
- The main reason for you being in the UK was not to receive full-time education.
There are potentially other ways of being classed as home status but, and this is really important to understand, in all cases the final decision rest with the admissions department of the university or college.
There are cases where parents have proven that they were abroad on a temporary basis only and have a base in the UK and the student thas been awareded home status but just because one university has accepted that it does not mean others will. The popularity of the course is also relevant and all of this is subject to change. Logic tells us that the situation will only get harder in future.
Note that UK Student Loans are largely only available to students with home status.
How should you invest?
The best way really depends on your personal circumstances. If you are looking at a period of over five years until you have to start paying the higher education fees you should consider investing the money in equity-linked plans as these will provide a better long-term return than deposit accounts.
You can pay in amount every month, or you can invest a lump sum which you can add to as and when you have have the means to do so. The level of investment risk will be in line with what you want and will be reviewed regularly.
When it comes to investment, you will do best with time on your side as compound growth can make a substantial difference over the years.
There are a number of plans that are sold as ‘education plans’ but these are nothing special, just the standard structured products with the word education added and the right approach is what fits best with your current situation, financial position, and future plans.
We can work out how much you might require to fund education, taking inflation into account, and then work backwards for the relevant number of years to establish what you need to set aside annually.
In reality, not everyone will be able to set aside enough to reach the target figure, bearing in mind that you have to live now and have other drains on income, but even saving 50% of what may be required will hugely ease the burden at a later date.
The good news is that these days we have flexible and well-priced plans and you don’t have commit to a long-term scheme, or pay over the odds for. Take a look at this article for information:
When should I start planning for these education costs?
The best time was yesterday but today will be fine and the sooner the better. If you have 15 years until your child goes to university, you will find it far easier to save the full amount compared to just having five years to go but you can make a difference at any time.
We need to be realistic but starting now, rather than leaving the planning for another year or more, is the right thing to do. All parents want to do the best for their children, to give them the future that they desire, and having the financial means to support them by paying tuition fees is a real gift.
Take the first step to today by contacting me at firstname.lastname@example.org to arrange a meeting to discuss how to fund your children’s education, or any other personal financial planning issue.
Article updated June 2022.
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