Parents who want to send their children to private school or help fund them through university should start facing up to the escalating costs involved and start saving as much as possible as early as possible.
Financial planning for third level education is, for most families, a last-minute affair. The local authority higher education grants scheme is often the first stop for many families, but the shortfall between the expenses many students face and the grant support available means that parents may have to dig deep into their pockets or apply for expensive loans. Forward planning has become the key to easing the financial burden.
While independent financial advisers confirm that there are no savings plans specifically geared towards school fees or university costs, there are a large number of general low-cost savings plans that would prove suitable.
"What purpose the savings plans are used for is irrelevant, as you could pretty much use them for anything," says Mr Douglas Farrell, of National Investment Brokers. "You need to decide how much you want to target and then formulate a monthly rate based on the growth interest rate," says Mr Farrell.
Based on a typical personal investment plan (PIP), a cash target of £15,000 (€19,000) in 10 years based on a growth rate of 5.5 per cent per annum would work out at £86.65 per month. Alternatively, if the family could only afford to put away £50 per month, the sum accruing over 10 years based on a 5.5 per cent rate would be £8,500 or more.
Although there is no guaranteed rate of return with bond or equity market investment vehicles such as PIPs or personal equity plans, Mr Farrell says that, based on past performance, such plans often come out in excess of the quoted interest rate. He adds that there are only very slight differences in these plans among the companies that offer them, which includes just about every major insurance company or investment divisions of banks. However, Mr Jeremy Walker, of Financial Engineering Ltd, says that many of the savings plans offered by the big banks are quite costly and somewhat inflexible.
"The administration costs of such plans can be high, and you can't increase or decrease premiums, add or take out money, or even stop making payments." He adds that customers have little choice of investment funds or managers. Mr Walker says that what he called "pure savings contracts", such as those offered by New Ireland or Standard Life, are cheaper and more flexible.
If parents are faced with the prospect of a teenaged child wanting to go to college or university and have little in the way of savings, they may consider a more immediate option to raise money, such as equity release on their homes.
Lenders find that there is absolutely no risk to lend £10,000£15,000 to home owners who may have a £30,000 mortgage on a house worth £250,000," says Mr Farrell, who adds that, five years ago, applications for equity release would not have been considered by banks for any reason other than home improvements.
