A beginner’s guide to education inflation is a stepping stone in saving and investing for your child’s education. With children come specific and inescapable responsibilities.
It starts with providing your child with a safe home, loving and nurturing space, and quality education to help them grow and become their better selves. Yet all these needs come at a high cost.
The average inflation rate across sectors is rocketing beyond belief and has bypassed the rate of household inflation. From basic needs to luxury, the average cost of different items has increased manifold.
College is a lifetime experience; it offers quality education, changes one’s mindset, and opens up a vast network of opportunities.
Generally, the chance to better oneself is why Indian parents and students work hard to get into some of the world’s most significant educational institutions, not just India.
Yet, this access to quality education comes at a great price. Consider the example of IITs in India; despite the devastating pandemic, the tuition fees for undergraduate courses jumped from Rs. 90,000 to 2 lakhs!
Similarly, top universities in the USA in 2022, announced tuition fee hikes while Canada increased its international tuition fees by nearly 5% annually across all provinces.
The increase in tuition fees and other consequential education expenses results from inflation; Education inflation is a real threat to your savings. The hard truth is that it will rise even higher in the years to come.
It has become imperative for parents to understand how Education inflation can affect their savings. And why it is essential to protect their savings via investment.
Before we talk more about why parents should be protecting their savings from Education Inflation, let us look at some of the factors responsible for the rise in education costs.
Factors responsible for the rise
1. The rising cost of amenities
The tuition fees don’t comprise the entire cost of education. It is also the amenities that come along with it. Food, accommodation, extracurricular, commutation, and other living expenses contribute significantly to the cost of education.
2. The rise in the number of educators
With more universities and the expansion of different courses, the demand for educators has increased as well. And this contributes notably to the overall cost of education.
3. Increased demand for higher education
Higher education has upgraded to be a necessity from the space of mere desire. A University degree is a means to financial success and prestige in the modern world.
4. Lower public funding
The public sector’s investment in the field of higher education is much lower than the other segments. Universities rely on tuition fees as their primary source of income which means that the burden of the cost falls on the shoulders of parents and guardians.
While you cannot control this financial phenomenon, you can strive to understand why you need to protect your savings from it.
Why do parents need to protect their savings from Education inflation?
1. Preserve your purchasing power
The value of money depreciates with time. Even though you might earn some extra currency over time, the real value matters the value of the Indian rupee depreciating against the dollar and pound over the years.
And you need to check whether you’ll be able to retain your present purchasing power after a certain number of years.
Consider ensuring that your return on savings is higher than the rate at which the value of money depreciates. The consistently soaring education Inflation is one of the significant factors affecting such depreciation.
2. Shield your child’s future
With a world full of information and opportunities, your child should be free to dream about their future. And to make this happen, it is essential to shield their future against all the odds.
With proper planning and strategic allocation of your funds, it is possible to compete with the rising cost of education.
3. Maintain your standard of living
To lead a happy and healthy life, look at the practical aspects of things. Your savings must consider your living standard. Your funds should be able to balance between needs and wants.
4. Make harmony with your retirement plans
You are to retire and there is no denying that. Are you willing to work this hard all your life? or, would you like to grow old sipping your coffee and relaxing while watching the rain?
Life has its phases and you need to enjoy them the way they are meant to be enjoyed.
While taking the cost of your child’s higher education into account, it is so important to take your retirement into consideration.
5. Take your health into account
Physical and mental health are pertinent to your well-being and your family’s bright future. A financially secure plan can protect you from avoidable stress, and various lifestyle diseases and prepare you for certain unavoidable medical expenses.
Only when you are healthy will you be able to enjoy the money you are saving. Thus, your health is another reason to protect your savings from Education inflation.
Education inflation is rising at 10-12% in India which makes protecting your savings essential to retain your purchasing power in the future.
Give your child the future they deserve by keeping up with the times and saving in advance.
How to build an education corpus?
1. Calculate the total cost
Plan the total cost to get an approximate amount that you need to save. Setting the target will create a goal and make the journey easy.
The education cost varies from course to course so take the help of professional experts to chart an education corpus plan.
A unique college cost calculator can do wonders for parents. The College Cost Calculator on the Edufund app takes into account various factors and calculates the future cost of college, which makes it easy for parents to set a goal.
2. Start investing as early as possible
Parents who can start saving and investing early manage to create a substantial amount of education corpus. The longer time you have in your hands, the more interest you can accumulate.
3. Choose the right investment tools
Know your investment options and invest in the right funds to get maximum returns. The financial plan must include the right methods and investment vehicles to accumulate funds.
Savings accounts with 3% to 4% per year and FDs with 5% to 7% per year are safe and secure ways to save. Traditional life insurance policies offer 5% – 6% interest per year.
Invest in equities at the beginning as they yield inflation-beating returns in the long run. Investors prefer SIPs in mutual funds for wealth creation.
Scroll through the Edufund app to know your savings option as it provides access to 4000+ direct mutual funds, SIPs as low as INR 100, US stocks and ETFs, ELSS funds, and digital gold.
4. Protect your investment
Aggressive investments will accumulate the desired funds, but it is vital to protect the investment from eroding because of adverse market conditions.
Remember the reason why you need an education corpus and shift the corpus to debt instruments as the goal nears to keep it safe and secure.
Start withdrawing two to three years before you will need the money and then shift it to bank fixed deposits or debt funds, as it will give fixed and safe returns.
5. Track your investment
Keep track of the investments regularly and finetune them based on the need of the hour. Creating a plan is easy but sticking to it is a bit difficult.
Don’t divert funds for non-essential needs, as building an education corpus is vital for the child’s future.
Education inflation over the years and in the future
Here is a look at the cost of popular courses in the past and the expected costs of the courses in the future. These costs are for one year of college.
| Course | Cost in 2015 | 2020 | Expected cost in 2025 | Expected cost in 2030 |
| Engineering | 145000 | 171374 | 202545 | 239386 |
| Hotel Management | 77000 | 98200 | 128205 | 159636 |
| MBBS | 800000 | 1000000 | 1250000 | 1562500 |
| MBA | 1140000 | 1586000 | 2206126 | 3068721 |
FAQs
Why education is becoming expensive:
There are many factors responsible for the rising cost of education. A few factors could be- the rising cost of amenities, the rise in the number of educators, the increased demand for higher education and lower public funding.
How do you calculate the future cost of education?
There is a formula to calculate the future cost of education. It is calculated with the formula Future value = Present value (Expected returns + Rate of interest)
What is the rate of inflation for college?
The cost of education has been increasing by 10% every year in India. Between 2012 and 2020, the cost of education rose in the range of 10- 12% every year.
How does inflation affect students?
As education costs go up, it becomes increasingly tough for students to get into their dream universities. This further affects their employment prospect.
