The Problem - the Rising Cost of Education Fees
Written by Dermot Monaghan on August 28, 2017.
Wherever you are based in the world, high-quality education for your child(ren) is a priority, but it can come at a huge cost especially when you factor in living expenses and the cost of a student loan.
Have you ever properly considered how much it will cost to put your child through university? While in the EU it is still possible to find affordable state universities with low, or in some rare cases, no tuition fees in countries including Germany, France, Austria, Italy, Spain, Norway, Finland and Sweden, this is the exception rather than the rule.
A university education from the UK is considered to be one of the best in the world and in demand from students from around the globe, but since fees were hiked in 2012 the UK tops the European table. Virtually all colleges charge UK & EU students the maximum fees of £9,000, rising to £22,000 per year for international students, with the exception of Scotland where Scottish and non-UK EU students get free university tuition although students from England, Wales and Northern Ireland and international students have to pay to study north of the border.
In Australia, college fees are banded depending on subject and range from AUD$4,000 per year up to AUD$7,000 per year while top universities in the US charge fees of over US$50,000 per year.
This all starts to add up, especially when you take into account that fees are often reviewed annually, inevitably upwards, and universities often reserve the right to increase tuition fees in line with inflation up to 4% per year.
And then there are living costs to consider on top, which are often a bigger annual expense than the fees. In Europe, the Nordic countries are the most expensive places to live with average monthly living costs coming in anywhere between US$800-$1,300. In Australia, AUD$2,700 per month is a rough indication of what a student will need to survive and in the US, factor in about US$2,000 per month.
So how on earth do students manage to fund their university education? Often student loans are the answer. These come in two forms:
Income contingent loans are loans that incorporate the earnings of the individual repaying the loan. In general, income contingent loans are repaid at a given percentage of total or marginal income above a certain threshold. In the UK for example, student loan repayments are only made once a graduate is earning over £21,000 net (€25,000) and are repaid at a rate of 9% income. Interest rates are linked to inflation.
In Australia, repayment only begins when income reaches AUD$55,000. The charge is then at a rate of 4% to 8%, depending on income. There are no interest rates but the outstanding debt is indexed for inflation.
A mortgage-style loan generally involves the repayment of an agreed amount on a monthly basis (depending on whether the interest rate is fixed or variable) until the entire principal and accumulated interest is repaid. They do not take into account the income of the debtor after graduation.
The problem with student loans is that many students graduate with high levels of debt which often carry over into middle age. When currently stagnant wages are combined with burdensome student debts many working graduates are forced to rely on credit cards, put off purchasing their own homes, and even delay getting married. In addition, an extremely serious consequence of student loan debt is the devastating impact this has on the ability to save towards retirement.
Indeed, a recent poll conducted by the American Institute of Certified Public Accountants found that 80% of Americans have made some kind of financial sacrifice to make student loan payments and 50% saying they have delayed payments into retirement accounts.
Millennials, who will not benefit from the same levels of pension as previous generations, are struggling at every turn and often face bleak financial prospects throughout their lives.
If you hope for a more positive financial future for your children, the key is to save in advance for their university education and I will explore this in my next post. I have already helped a number of clients in Almaty and Atyrau with education fee planning. By getting ahead of the game and benefitting from compound interest you can ease, or even eliminate altogether, the burden for your children once they graduate.
If you have children and have any questions about education fee funding solutions which will enable you to invest and grow your savings, why not contact me for a no-obligation chat. You can contact me by email at email@example.com, call me on +7 (747) 837 0469 or Skype me at dermot.m.monaghan.