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The hidden costs of education


There is no doubt the freedom that an education can provide but paying for it can be expensive, especially where there is little or no financial assistance.

November 22, 2012 5:12 by

Without doubt, one of the most rewarding things in the world is parenthood and as a parent, you naturally want to provide the best you can enabling your children in their life.

Here in the UAE, many will have the expat package including education but what happens when your child moves on to further education and where are they likely to go?

All things to consider, especially when CNN Money recently stated that those without a college degree were more than twice as likely to end up without jobs and that over a lifetime, the earnings gap between a high school diploma and a degree graduate is in excess of $800,000.

There is no doubt the freedom that an education can provide but paying for it can be expensive, especially where there is little or no financial assistance.  It is estimated in the UK alone (Push Student Guide 2012) that by the end of 2013, the average student debt will be a shocking £60,000 or $96,000 per pupil – something which will take many a lifetime to pay off.  When looking at universities overseas, it is also worth considering that student loans and government assistance may not be available if for example you do not pass residency requirements, so it is important to have funding in place prior or ensure you qualify for eligibility if seeking financial assistance.

With university fee’s having increased well above inflation in recent years, it is essential that if you want to provide financial assistance, you need to consider the facts and act as soon as possible.

Taking two popular university destinations the USA and the UK for example, the current average university cost including courses and accommodation is £18,000 / $28,800 per child per year.  In the US, this figure is higher at £21,875 or $35,000 per year but top Ivy League Universities can charge that alone just for tuition fees.  On a four year course in today’s money you would be looking at between $115,200 – $140,000 per child which represents a significant outlay to consider.

Planning effectively can make a real difference and the sooner it is planned, the less you need to spend.  Without even taking the effects of inflation, for example, to achieve a $140,000 lump sum of money you could invest $400 per month for 18 years from the birth of your child in an Education Savings Plan vehicle (assuming a realistic 5% growth rate).  However, to achieve the same $140,000 in just 5 years, you would need to put away $2060 per month representing 30% more in contributions or $37,200 – over a quarter of the total amount required.

Alongside this planning, it is important to consider additional costs which could be quite significant but are often overlooked such as travel for both your child and visiting parents (as regularly the parent will be based in a different country).

It is also vital that the currency of the plan is taken into consideration when considering where your child may end up.  Currency fluctuation can impact the value of money significantly and must be taken into account to maximise your money and returns.

Overall, the message is clear – make a plan and seek professional financial assistance to ensure that all the bases are covered and that there are no hidden surprises.

John Bailey, Financial Consultant – Acuma Independent Financial Advice

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