The impact of student debt on graduates’ financial and life decisions can be significant, but many still choose to go to university given the increased job opportunities and the higher future earnings that can be achieved. By implementing an education plan early on, you can help reduce the burden of student debt on your children in the future, meaning they can celebrate graduation without worrying over their financial situation.
The cost of university depends on a number of factors, not least the country in which the university is based, the standing and prestige of that university, and the type of degree on offer. In 2018/19, the average tuition fees for a private non-profit university in the US was $35,830 per year. In the UK, the average tuition fees for international students are £12,000 ($16,500) per year for a three-year undergraduate course.
For certain universities and courses, the fees can dramatically increase. For example, the current average tuition fee for an Ivy League university is $54,425 per year, and the average tuition for international students studying medical degrees in the UK is £38,000 ($52,305) per year.
This means average total costs in the US and the UK could be $143,320 (four-year course) and £36,000 (three-year undergrad) respectively. These total costs could be as high as $217,700 for Ivy League universities and £114,000 for some UK medical degrees.
Planning early for these future costs goes a long way to easing the financial burden on your children and allows them to not be financially restricted in their choice of university.
Inflation, the rise in general prices and reduction in the purchasing power of money, also impacts upon tuition fees. Tuition fees can be affected by a higher rate of inflation than on general prices. For example, the average cost of university fees in the US was $24,914 in 2014. This increased by $10,916 over a five-year period: a 44% increase.
In contrast, a UK law introduced in 2017 allowed universities to increase their fees year-on-year in line with inflation up until 2020/21. Over the last 10 years the average annual inflation rate in the UK has been 2.06%. Although a lower increase than in the US, it still means that were your child due to go to university in the UK as an international student studying medicine in another 10 years, they could face fees of £139,785 – an increase of £25,785 on today.
Students don’t only need to pay tuition fees to go to university, but moving away from home means they are now reliant on paying their own rent and bills, as well as covering the cost of food, books, and general spending.
In the US, the average cost of room and board is estimated to be $12,680 per annum (2018/19) at a private non-profit. Including tuition fees, this means a total cost of $48,510 per annum and $194,040 over four years before inflation.
In the UK, the British Government suggests the total cost of living for an undergraduate outside of London is £12,180. This means a total cost before inflation of £24,180 per annum (international student, non-medical degree) or £72,540 over three years.
Inflation will affect the cost of living as well as fees, therefore using the same example as above, the total cost for an international student in the UK studying a non-medical degree in 10 years’ time will be £88,947.
Holding a British passport does not guarantee your child will be considered a home student at a UK university. Currently, universities can classify British expatriates coming back to the UK to study as international students unless they have lived for three whole years in the UK prior to commencing their higher education. This means they can be charged more as an international student than would be the case if they received home student status.
There are more than financial implications to this if you are wanting to send your British children to a British university, and our Wealth Advisers will take the time and care to listen to the needs of your family whilst helping you plan for education expenses.
The first step is to decide how you feel about your children being saddled with debt as soon as they begin their post-graduation adult lives, and how you feel about their time outside of study to self-fund the cost of living.
As will all savings targets, the earlier you start the easier it is to achieve. Saving what could potentially be $200,000 is clearly more easily achieved over a 16-year period than a three or four-year period. Not only does it reduce the amount you need to save on a regular basis, but it also means you can invest in a lower-risk strategy where there will be less emphasis on needing to chase high returns.
Our Wealth Advisers will build your education plan around likely destinations for study and the costs associated with that particular country, university, or degree. When starting early, there is a chance you won’t know where or if your children will go to university. We can also plan around this, basing on average costs potential family plans for the future. And if your child doesn’t go onto higher education, you have still built them a nest egg that can go towards, for example, their first home or passed on for them to start their own wealth planning.
Whatever your children choose in the future, you can make sure you and they are financially prepared for every eventuality.
Succession planning is ensuring a smooth transition of assets from one generation to the next. Once you have chosen which family members, friends, or even charities will inherit which assets on your death, it’s important firstly that those assets will go where they are intended, but also that any inheritance taxes due are also taken into account.
Argentum Private Wealth specialises in investment management and planning for whichever objective you have – retirement planning, education planning, succession planning, or general investments from surplus cash.
Argentum Private Wealth specialises in investment management and planning for whichever objective you have – retirement planning, education planning, succession planning, or general investments from surplus cash.
Benefiting from both a Global Insurance License and an unrestricted Investment License, Argentum Private Wealth can offer solutions across the entire Financial Planning spectrum.
We offer high-level wealth management founded on individual needs, long-term prospects and future goals.
