PARENTS are putting their children’s education at risk by leaving it too late to start saving for university.
The best option depends on your family’s circumstances. Eamon Dwyer, the managing director of City Life Wealth Advisors in Cork, said: “There is no one-size-fits-all strategy. You need to do something about it if you want your kids to be sure of going to college.”
We ask the experts how to prepare financially for third- level education.
HOW MUCH WILL I NEED?
It depends on how many children you have, how long they study for and whether they will have to leave home to go to university.
DIT Campus Life, which provides services for students at Dublin Institute of Technology, says that it costs €1,220 a month for a student living away from home.
Rent is the biggest expense. In Dublin the problem is particularly acute because of a massive shortage of rental accommodation.
“About €10,000 a year is what we typically plan for,” said Dwyer — so €40,000 for a four-year degree course.
SHOULD I SAVE OR INVEST?
Your attitude to investment risk and the length of time you have to build up your college fund will determine whether you should save or invest your money.
David Quinn, managing director of Dublin financial planning firm Investwise, said: “If you’ve less than five years, you probably don’t have much scope for risk. You need time for the volatility of the markets to smooth out a little bit.”
Depending on circumstances, however, you may have an appetite for some risk over a shorter period than five years.
SAVING THE MONEY
Monthly savings accounts are the best option for those who want to avoid investment risk. The advertised returns look attractive but banks will reduce them as soon as you have accumulated a decent sum in your account. Nationwide UK (Ireland) currently pays the best rate — 4% — on monthly savings of €100-€1,000. The maximum term is 15 months.
KBC Bank pays 3.5% on savings of €100-€1,000 a month, or 4.5% if you open a current account.
It says you would need to save €700 a month at 3.5%, or €690 at 4.5%, to have a college fund equivalent to €40,000 in today’s money in five years’ time. This assumes inflation of 2% and deposit interest retention tax of 41%.
WHAT ABOUT INVESTING?
The burden of building a college fund would be less if you could earn more by investing rather than leaving your money on deposit. Figures from Investwise show you would need to contribute €650 a month to build a fund of €40,000 over five years, allowing for charges, 2% inflation, an exit tax of 41%, and 6.25% annual investment growth — “an achievable long-term return within a reasonably conservative portfolio”, according to Quinn. The earlier you start, the lower the burden. Over 10 years, you would need to invest €300 a month.
Over 15 years you would need to invest €200 a month, more than the child benefit social welfare payment of €130 a month.
“My recommended investment provider would be Friends First, particularly if there is an initial lump sum being invested,” said Quinn. “It has the most transparent charging structure, with options including a cheap index tracking fund.”
For those investing less than €200 a month, Quinn’s pick of provider was New Ireland. “Its headline charges are the most competitive,” he said.
“However, it doesn’t have quite the same transparency as Friends First, or passive investment options.”
In America and Britain, students typically rely on loans to pay for college, delaying repayments until they finish university and start working.
Allied Irish Banks and Bank of Ireland offer this facility to some students, even suspending interest for part of the loan term. The catch is that they are available only to postgraduates or students in elite faculties such as medicine. Their employment prospects and salaries are perceived to be strong, making loans to them less risky.
AIB’s specialist faculty loan is available to students training to be doctors, dentists, vets and some other professions. The maximum loan is €10,000, with no repayments and no interest charged for up to five years. After that interest is charged at an annual rate of 8.73%-12.99%, depending on the type of current account that the student has.
Bank of Ireland has a medical loan for graduates who decide to retrain as doctors. The maximum loan is €60,000, interest is charged at an annual rate of 6.6% and no repayments are required until after qualification. Repayments can be made over a maximum term of 10 years.
Bank of Ireland also has a postgraduate loan of up to €7,500 at an annual interest rate of 5.6% with a 12-month moratorium on repayments. It said those requiring bigger loans would be assessed on a case-by-case basis. Interest-free loans of up to €1,500 over 12 months are offered to all students.
For loans where repayments of interest and capital begin immediately, AIB will lend up to €50,000 for one to five years at 9.95% annual interest. Bank of Ireland will lend up to €10,000 over five years at 9.7% interest.
Credit unions are an important source of student finance but do not suspend repayments until borrowers enter the workforce. The Irish League of Credit Unions said: “Of those credit unions that offer dedicated student loans, the average interest rate is about 6.4% but some credit unions offer rates as low as 4%.”
School uniform costs mother’s primary concern
Elaine Edwards, 34, is prioritising primary school for her children before considering the costs of further education. She estimates it will cost at least €200 per child to send Hannah, 6, and Mia, 4, back to school this week in Portlaoise, Co Laois, including books and uniforms.
“The biggest cost is uniforms. The school allows only uniforms with a crest. It won’t let us buy a plain jumper and iron on the crest separately,” she said.
A book rental scheme helps keep some of the costs in check but it does not include workbooks, which must be purchased new.
“We have to buy the books that aren’t part of the book loan scheme. A lot of the time you have to buy a new edition, even though only a couple of pages have changed. It seems like a money-making racket,” she said.
To help pay the bills, Edwards has set up an online business called sweetstreatsgalore.com, which sells the kinds of traditional sweets that have largely disappeared from the shops.
She also uses the family life website mummypages.ie to source school items and to swap tips with parents on how to manage her children’s school years. She thinks the state should do more to help. “The government should force schools to give parents the choice of buying school crests separately from uniforms. They could also come up with a savings or investment scheme where you would contribute some of the child benefit each month,” she said.