Higher Education – Monetary Considerations for parents

India is surging ahead in the sphere of education. With a population that is young, aspirational and with a zeal to learn and achieve, India churns out a vast number of professionals each year. As per an Ernst & Young report, “23 Indian universities are among the global top 200, going from none two decades ago.” With significant spends in infrastructure and capability development, universal access to primary and secondary education is the larger objective of the government. As per the E&Y report, “India is among top 5 countries globally in cited research output, its research capabilities boosted by annual R&D spends totaling over US$140 billion.”

A parallel phenomenon that is posing a challenge to these educational aspirations is the unabated rise in the cost of education. With each passing year, costs related to education are seeing a steep increase. Basic tuition fees, cost of stationery, transportation costs, uniform and books, educational trips and other incidental costs add up to a sizable amount even at the level of primary school. Not to mention, the cost of higher education – at a premier college. An ASSOCHAM survey states, “65% of parents spend more than half their take-home pay on their children’s education, extra co-curricular activities placing significant burden on their family budget.”

As per an E&Y study, “By 2030, India will be amongst the youngest nations in the world. With nearly 140 million people in the college-going age group, one in every four graduates in the world will be a product of the Indian higher education system.” Consider the cost escalations of higher education 15 years hence. The cost of a two year MBA program in one of the premier B-Schools runs to 15 – 20 lakhs today. This cost could easily double in a span of 15 years given an annual inflation of 8%. Therefore, parents will have to plan with due consideration to meet these monetary requirements at key stages of their child’s life.

There are many investment avenues to meet your financial goals. Equities are universally considered as riskier asset classes. As a rule of thumb, you should try not to associate your financial requirements for life’s key milestones with these asset classes. Corpus required for your child’s education is one such milestone. Now that we have discussed de-risking your key milestone related financial objectives, let’s look at alternative investment options available at your disposal. Term insurance is an obvious choice considering the large lump-sum payout in case of an unfortunate event. Also, term plans offer a high cover at a low cost which is one of the reasons why such a plan is an obvious choice. However, one must note that once the payout is made, the policy ends right there. There is a good possibility that the sum is utilized for purposes other than the educational requirements of your child. Hence when the objective is to meet key milestones, a plan that provides lump-sum payments at key intervals is perhaps better suited.

child insurance plan offers a lump-sum payment on the death of the policyholder, but unlike a term insurance plan, the policy does not end there. Future premiums are waived and the insurance company continues to invest on behalf of the deceased policyholder. The nominee receives lump-sum payments at future dates to meet a large financial outgo at key stages such as admission for post-graduate studies, etc.

Financial exigencies resulting from unfortunate events – death/disability of the breadwinner – bring financial uncertainties that cannot be surmounted unless one is adequately cushioned to meet such events. Therefore, careful financial planning with due consideration of your child’s future financial requirements will keep you in good stead.