Children’s education – when parents aspire without a plan

When I met some of my school teachers in a reunion, one of our teachers commented on how parents’ view on education has changed over years. If the debate was about CBSE or state board earlier, it is about ICSE (Indian certificate of secondary education) or IB (International Baccalaureate) board now. If it was IIT or private engineering college earlier, it is about US or UK or Canada for undergraduate studies now.

Aspirations have changed. But so also the cost of funding such aspirations. Agreed, funding options too have undergone a change. There are more education loan options available today than two decades ago. However, how many Indian parents allow their children to repay the loan, especially undergraduate loans? Also, how many students land up in a job abroad, in order to comfortably repay the loan?

Our experience tells us that many parents face the following situations when it comes to their children’s education: one, when they put their children in top international schools with fee running to several lakhs and also run a home loan EMI, their ability to save for the future considerably declines. So, while they aspire for quality education for their child, their own savings is in complete jeopardy.

Two, parents who assume that their child will go to a college in India for their bachelor’s programme, are suddenly taken aback when they realise that their child is facing immense peer pressure, during high school, to apply for schools abroad. This leaves them far less prepared and leads to sudden EMI commitments that they struggle to manage. Three, parents often underestimate the job potential especially when their child does an undergraduate degree or does an obscure 1-year international degree in some non-specialised field. This leaves them saddled with loans that only they can repay even as the child continues to remain a dependent. And soon after the masters cost kicks in.

I am not going to sit in judgment over parents’ wisdom of sending their kids abroad. Let me focus on the difficulties and learnings from those who aspire without a plan in place.

Can’t have them all

Unless parents are in a high-paying job or have an established business running, aspiring for international schools may be an uphill task; if they follow it up with further education abroad And then, we have this goal, unique perhaps to Indian parents called ‘wedding expenses’. Now, that essentially means saving up simultaneously for education and wedding and, of course, fervently hoping some money will last for your retirement after all this! When confronted with such a situation, here are some options that parents should consider:

• Consider a regular school and start saving early on for your child’s under graduation or higher studies. Use the right saving instruments. An FD cannot pay for undergrad school. You need a combination of higher risk instruments and steady ones like Sukanya Samriddhi (for girl child) to provide the right mix.
• If you did not plan for your child’s under graduation abroad but your child wants to, discuss your financial situation with your child and explain the challenges or set the right expectations in terms of earning a scholarship to study.
• Avoid prioritising saving for wedding over saving for education. It not only hampers saving for more important goals but also makes for meaningless saving, like excessive exposure to gold when you are not even sure whether it will be a fashion metal in vogue 20 years hence.

Don’t get into a loan loop

Taking a loan for an ivy league school where you know you will get a job is very different from sending your child abroad for the sake of a ‘foreign’ degree. There are enough instances of undergraduates returning home given the stringent visa regulations overseas and struggling to land a job here. Be realistic on whether the course is worthy of a loan and what is your ability to repay the loan. Very importantly you cannot entirely kill your retirement plan. Also, please note that repayment clauses on such loans are far more stringent than loans for post graduate studies.

Save early, save right

The only way to meet most of the expenses if your child wishes to study abroad is to start saving early and save right. Here are a few steps to follow for this:

• Although you may not know what your child wants to study, you need to start planning for the cost of an average degree abroad and factor inflation and start saving at least a decade before the goal.
• Like we said earlier, unless you have a basket of some risky market-linked investments with some fixed income products, there is no way you will be able to save for education abroad, especially given the weak rupee against major foreign currencies.
• When you choose your investments, make sure you choose those that have liquidity and can be exited if performance is below expectation. Products like mutual funds, or even direct equities (if you track the market) are better options than locking yourself with less transparent products like ULIPs.
• Investing in international funds or ETFs is also a good way to hedge against the depreciating rupee. For this purpose, the US market remains the best bet in terms of correlation and market depth.

After all this, if your child does not want to go abroad, then be assured you will have a ball of a retired life from the early savings made!

This article first appeared in the ‘The Hindu’ dt. April 21, 2019.