5 ways to deal with rising college fees for your child!
According to Money Control’s recent statistics, “education inflation in India rose by 10% from 2012-2021” It has disrupted the lives of parents and aspiring children to ensure ease of admission.
The data shows that education costs rose above food and healthcare despite the hard-hitting pandemic. “IIT (Indian Institute of Technology)- all units in the country, doubled their fees by Rs. 90000 to Rs 2Lakh for all undergraduate courses in 2021.”
The worst figures are yet to blow the minds. According to the Economic Times, “parents will have to spend 1.5 crores on the child’s education.”
To ensure parents do not struggle to meet the growing costs of raising a child, here are some ways to deal with rising college fees for your child!
Ways to deal with rising college fees for your child
1. Invest via SIPs
SIPs are ideal if you wish to begin small in the market. In this, you can start by saving ₹5000 every month for ten years at 15% interest (assumed), and you can accumulate up to 7.93 lakhs for your child’s education. A SIP provides long-term gains and consistent savings.
Continuously diversify your SIP investments in 2-4 equity-oriented mutual funds with a mix of large and mid-cap investments.
Tap into equity-linked saving schemes to save for a child’s college fees and save on tax. The earlier you invest in SIP for a child’s education, you may reap more returns.
2. Invest in US Stocks
You can invest in US stocks from India in 2 ways, that is, Direct investments in stocks and Indirect investments in stocks through Mutual Funds
In the case of Direct Investments, you can invest in stocks through an overseas trading account with a domestic broker or by creating an overseas trading account with an overseas broker.
In the case of Indirect investments, you can invest in US stocks from India in the form of Mutual Funds, or ETFs (Exchange Funds Transfer and Investing Applications.
As per RBI guidelines under the Liberalized Revenue Scheme (LRS), one can invest up to 1.9 crores or 250000 dollars per year.
3. Invest in PPF (Public Provident Fund)
A PPF is a 15-year scheme that helps create a tax-free savings account for your child’s educational expenses.
A guardian may withdraw some amount after 6 or 7 years of maturity. If your child wants, he too may contribute towards the fund after maturity.
One can extend the account’s validity after maturity. Always remember, that PPF is a debt account. Hence, inflation blows might affect investments.
The combined limit for the PPF account is 1.5 lakh per annum. Under Section 80C of the Income Tax Act, a PPF account with 1.5 lakh is eligible for tax benefits. One can leverage the use of interest and maturity amount tax exemptions.
4. Unit Linked Insurance Plan (ULIP)
Insurance companies provide ULIP with the flexibility to cover multiple investments under a single scheme for investors.
With one policy, you can choose among high, medium, and low-risk investments. An investor can either choose a fixed sum or an investment premium.
Evaluate the risk appetite and invest accordingly in the low, medium-, or high-risk investment options. In an unforeseen situation, investors can withdraw a sum after 5 years. The premiums offered are exempt from tax under section 80C.
As per research, “A ULIP fund provides 10% returns on average.” For this, an investor must invest for 10 years in the ULIP funds. It is considered an ideal investment for a long-term child’s educational goals.
5. Fixed Deposit
It is one of the safest options to eliminate the college fees blues regardless of inflation. Fixed Deposits provide guaranteed returns on investments.
Always analyze the interest rates, yield, and interest compounding frequency from different providers before settling for one.
The higher the interest rate you get on FD, the bigger the child education fund corpus. However, FD may not provide 10-15% returns, but it is a volatile-free debt instrument.
The current educational costs may vary significantly from future educational costs. EduFund eliminates the guessing game by providing a tangible view of investments through a trusted college calculator.
The experts help design a personalized child education investment plan highlighting the guardian’s current income and future educational costs, hassle-free.
What are some best ways to deal with college fees?
While there is no one-size-fits-all solution, a few options can be explored depending on your monthly budget, your choice of college, and the stream your child wishes to pursue. Below are some of the best ways to deal with college fees.
- Manage your Budget
Creating a budget to manage your finances efficiently goes a long way in setting up a disciplined way of life. It helps in monitoring your spending, prioritizing essential expenses, and cutting down on unnecessary costs, thereby helping you save for your child’s education.
- Invest Early
Investing early on is a smart move as you get enough time to create a corpus of a substantial amount for your child’s education. This also saves you from borrowing money from relatives and taking on educational loans.
- Invest in SIP (Small Investment Plan)
Begin by investing small amounts in a smart investment plan. This will help you get comfortable with the idea of investing in education. A flexible investment plan is also a good option that allows you to increase your investment at a later stage.
- Invest in US stocks
You can invest in US stocks, either through Direct Investments or Indirect Investments.
Direct Investments allow you to invest in stocks through an overseas trading account with a domestic broker or by creating an overseas trading account with an overseas broker.
Through Indirect Investments, you can invest in US stocks from India in the form of Mutual Funds, or ETFs (Exchange Funds Transfer and Investing Applications).
- Educational Loans
An educational loan is also an option for those seeking to study abroad as well as for those who wish to educate their child in one of the expensive institutions in India. Edufund helps you in calculating your college costs along with living expenses providing you a transparent report of the expenses involved. Based on this, a suitable hassle-free loan option is provided.
- Scholarship Programs
Most educational institutions provide scholarships to students who excel in academics but are unable to bear the cost of expensive institutions. You can apply for the same after reading all the terms and conditions.
The first step should be to avail yourself of a counseling session to deal with all the doubts and queries you may have. EduFund provides this first step in a very transparent and efficient manner. As mentioned above, solutions are provided based on your budget and requirements and you can choose the one that suits you the most.
What is the best time to save for college fees?
The best time to start investing would be as soon as you plan to have your child, or even earlier if possible. This helps in accumulating a decent amount by the time your child starts college.
Having said that, it’s never too late to start investing. Begin your investment journey with right now!
What are the 5 ways to save for college fees?
Here are the 5 ways to save for college fees:
- Invest in SIPs (Small Investments Plans)
- Invest in US Stocks
- Invest in PPF (Public Provident Fund)
- Unit Linked Insurance Plan (ULIP)
- Fixed Deposit
Why are college tuition costs rising so fast?
There are several common factors which contribute to escalating tuition costs:
Administrative costs: Many universities have seen significant growth in staff and expenses and investing in appropriate technology.
Infrastructure costs: With growing competition, institutions need to keep adding or upgrading their existing infrastructure and facilities.
Additional Services and Facilities: Additional services and facilities such as providing counselors, a robust medical service, and co-curricular activities such as sports, arts, trekking, excursions, etc. require additional manpower driving up costs for parents.
Education inflation: Inflation that affects the general public also affects universities and institutions increasing operational costs. It increases the costs of studying and related education expenses.
Technological costs: Technological advancement improves the overall education system, but it also drives up costs due to investment in infrastructure and equipment as well as in their usage training.
Reduced Government Funding: The government can reduce its funding for several reasons and universities have to face the rising costs. It forces them to increase tuition costs to make up for the shortfall.
What are the solutions to rising college tuition costs?
Here are 2 solutions to the problem of rising college tuition costs:
Invest in mutual funds: Mutual funds are the best way to beat the rising college tuition costs. They offer great returns and are often known to beat inflation. You can start an investment plan for your kid’s future when they are in school and invest till they are off to college.
Invest in US ETFs: Another way to beat college costs is US ETFs. They are great if you want to send your kid abroad to study. They can beat inflation, and rupee depreciation and they offer great returns in US dollars.