I was doing some research on this subject recently and discovered that the approximate cost of putting a child through college for four years who is living away from home is €41,880 and €27,156 if they are living at home. This annual cost covers accommodation, travel, books, clothes, social life etc. It does not include the annual registration fee either which is currently €2,500 rising to €3,000 in 2015. Of course this cost could be reduced by grants, scholarship’s, tax relief on registration fees, the child earning a part time job and so on but the reality is that the amount required is substantial.
So, how do people do it? Well according to a study carried out last year by the Irish League of Credit Unions, this is how some finance the cost:
· 42% save the money (they save on average only for a period of 8 years)
· 29% borrow money from their Credit Union or Bank
· 6% use their credit card
· 2% borrow the money from money lenders
And I am sure there are a big percentage of people who use a combination of all or some of the above along with using funds from their current monthly income.
The majority of people I meet try not to use their monthly children’s allowance if they can and deposit this into a savings account that will eventually be used for that child’s future education. And if you can do this then fantastic, you are well on the way to accumulating the funds required – BUT do you really know how much you should be setting aside each month?
Before I answer this question for you, let me first tell you about a conversation I was having with a client of mine recently where I began telling him how much it was going to cost him and his wife to put his 8 and 6 year old boys through college.
Financially he could afford to put the amount needed aside each month but he said that he saw great value in having his children share the cost of their education. He is a very successful businessman but he came from very humble beginnings where his father didn’t earn very much but it didn’t stop him from going to university. He worked two jobs whilst studying for his degree – he had no other choice and he said it did him no harm at all.
He went on and told me that of course he didn’t want his kids to be saddled with debt before they left college and nor did he want them worrying about money every week but he did say that letting his kids in on the financial realities of college, when they are old enough, would be one of the more important lessons they will learn from their college experience. There is no harm, he said, in them getting a weekend and or summer job to help with the costs of their education and I am sure this is the reality for most.
Back to answering the question at hand – how much is it going to take each month to save and put a child through 4 years of college? And the answer is going to be based on a number of factors:
What age they are when you start saving?
Whether they are going to live at home or away from home whilst at college?
What % of the total cost of their fees you are going to pay – and this is important because it doesn’t have to be all or nothing. Maybe you can’t afford to put away an amount now that will pay 100% of the costs but you might be able to put away an amount that will cover 75%
So, I am going to put together a chart for you, based on just using your regular savings only (no borrowing!!) that will help you (a) see if what you are saving in enough to meet your child’s future college costs and (b) what is required from you if you are just starting off. And there are a whole host of permutations that I could apply to this and many different factors we just don’t have control over (future costs of fee’s, inflation, interest rates etc.) but this is a good starting point and something that you can react to and plan for right now and amend if required over the coming years to make sure you stay on track.