The cost of putting your child through college, could be more costly than you think.  If you have young children you need to take action now.

We feature in the latest Sunday Independent article where our financial consultant David O’Connell talks about the increasing costs of putting a child through college, but read on for further details of how you can fund your child’s college education.

Taking the cost of going to college of €11,064 per annum as outlined in the DIT survey, if we assume 2% p.a. inflation and a four year college course, we could expect the college fees for a child hoping to go to college in 5 years time to be:

 Parents don’t have to have all the funds saved by the college start date – they can save from now until the start of the final college year to cover the costs and this should help spread the load out over an extended number of years. If we assume a 3% p.a. net investment return, saving €480 per month would fund for the entire college costs for the same child.

 

It’s still a lot of money to put away every month – so what could help is to finance the cost of education through:

• Savings up until the child starts their college education, and
• A Loan from that date

For instance, some credit unions will provide loans of up to €8,000 for the first years college costs, and €6,000 p.a. for the next 2 / 3 years. The interest rate and repayment term would be determined by the financial institution, but it may be possible to agree a loan to be repaid over a term longer than the college course.

Again taking the same child, if you were to

• Save €350 per month (assuming the same investment return) until the time they start their college education
• Borrow €8,000 when they start their college education and €6,000 p.a. for the next 3 years – repaying the loan over say 9 years at an interest rate of 6.5% p.a. then the cost of their college education could be spread out as follows:

 

 Obviously, if you have more than one child, the costs and the need for an extended funding period may become greater.

When it comes to looking at the way you save, we believe the most important thing is the discipline of saving rather than the potential investment returns available from different forms of savings.

If you are looking at a child starting their college education in 5 years time, and you could earn a net 5%pa (rather than 3%pa as we assumed above) on a savings plan, it would only reduce the cost of savings from €480 per month to €460 p.m. To earn a net 5% after fees and taxes requires that you would take on a lot of risk – let’s remember here that the primary purpose of saving is to finance your child’s education, and you don’t want to jeopardise that by taking on significant risk.

If your children’s college education is not due to start until much later, then you can afford to take on some additional risk, as investment returns should even out over time. However, we would reiterate that the most important thing is to save regularly and consistently, rather than focusing on which investment might yield the highest return for you. In this regard regular bank or credit union savings accounts should be considered alongside investment savings plans as suitable vehicles for providing for your children’s college education.