How To ... save for your child’s education

2014-09-21 15:00

When I was in Grade 1 at a government school in 1984, my school fees for the year were 25c. I have the receipt to prove it. When my son started Grade 1 last year, we had to fork out just under R30?000 for the year. Ouch! We’re looking at a cost of roughly R443 000 for a five-year university degree in 10 years’ time. So, how can the average Joe fund these education costs? Neesa Moodley-Isaacs looks at the options open to parents

Jaco Gouws, product marketing actuary at Old Mutual, says if your child started Grade 1 at a public school this year, you can expect to pay about R450?000 for their 12 years of schooling. A private school education, on the other hand, will send costs soaring to about R1.5?million over 12 years, including additional costs such as uniforms, learning materials and extramural activities.

As with most things in life, funding your child’s tertiary education is going to take extreme discipline and careful choices on your part.

There are several options available to you:

Bursaries

One of the most well-known bursary schemes is the National Student Financial Aid Scheme (NSFAS), which is a government loan and bursary that provided students with as much as R8.5?billion last year. You can apply directly to the NSFAS via its website (www.nsfas.org.za) or via the financial aid office at a university or technikon of your choice.

Bursaries via NSFAS are available for studying social work, scarce skills, studying through FET colleges and for students with disabilities.

There are also numerous private companies that will help you cover the R20?000 to R30?000 annual cost of tertiary education. Note that the terms of each bursary will differ. While some companies or trusts may offer your child a “no-strings” attached bursary, other companies will require students to work a year’s service for every year of paid tuition.

For example, Eskom provides bursaries and in-service training for students in the disciplines of engineering, accounting, commerce, communications and human resources.

Bursaries like these are a great option as they also provide your child with job security once they graduate.

To find a full list of bursaries available in the country, you can order a copy of the Bursary Register, which will cost you R180, by calling 011?672?6559. Or you can visit the website at http://www.gostudy.mobi/bursaries/all/default.aspx

Loans

All the big banks offer student loans, which are repayable once your offspring have completed their studies and started earning an income.

However, you can encourage your children to get a part-time job while they’re studying and start paying off their loan sooner so that they reduce the interest they have to pay.

Bank loans typically require a parent or guardian to stand surety. NSFAS also offers student loans at interest rates significantly lower than the banks. Repayments on an NSFAS loan start at 3% of your annual salary, increasing to a maximum of 8% when you earn an annual salary of R59?300 or more. This works out to a monthly repayment of R696.

Depending on your child’s academic results each year, up to 40% of an NSFAS loan can be converted to a bursary which does not have to be repaid. This encourages students to take their studies seriously.

Life insurance

If you are one of many parents who have opted to start their families later in life, for example, having their first child in their 40s, you could structure your life insurance to include funds for your child’s tertiary education. This allows for the scenario where you are not around to help your child with bursary or loan applications.

The benefits of this approach include flexibility. If you are around to provide for your child’s education, then the life insurance proceeds can be used by your child later for a deposit on a home, to start their own business or as a legacy for your grandchildren.

Unlike a pure savings policy, a life insurance policy also offers you the option to take out funds as a loan if and when you need the money. Note that if you choose this option, it will reduce the payout your beneficiaries receive if you die before you have fully paid back the loan.

Where to save

According to www.smartmax.co.za, if you have a child in Grade 2 this year and you want to fund a four-year university degree, you need to save roughly R650 a month. However, note that this calculation assumes that your contribution will increase by 9% each year, that your savings will grow by 8% a year and that the cost of education will increase by 9% a year.

The problem with this set of assumptions is that the education inflation is about 13% a year at present?–?which means that you are likely to have a shortfall.

Fundisa

This is an educational savings account introduced by the government. Geared towards students from low-income families, the fund also features a “bonus” payment by the state into your savings account each year based on how much money you have saved. To receive the maximum bonus of R600, you would have to save R2?400 a year or R200 a month.

The means test for the learner applying to save in the Fundisa Fund is that their annual household income must be less than R180?000. The means test, however, only applies to the learner’s household income and not to the people contributing to the account so a high-income earner can easily open a Fundisa account for a child from a low-income household.

RSA Retail Savings Bonds

This is a long-term savings bond that you can buy from any Pick n Pay, post office or directly from the National Treasury. You can buy a fixed-rate bond or an inflation-linked savings bond.

The interest rate you earn is then either determined at the time you take out the bond or linked to the inflation rate. For example, if you took out a five-year fixed rate bond today, you would earn interest at a rate of 8.25% while a five-year inflation-linked bond would earn you interest at a rate of inflation plus 1.25%. The minimum investment amount is R1?000. One of the main drawbacks of the RSA Retail Savings Bond has been that it is a once-off investment amount. However, the finance minister recently announced that recurring deposits would soon be allowed.

Unit trusts

Saving for an education means that you have a savings timeline of at least 12 years if you start saving from the time your child starts primary school. This makes unit trusts an ideal investment vehicle for you.

You can invest in four different asset classes?–?property, equity, cash and bonds. A balanced unit trust fund will have some exposure to each asset class so that your investment is diversified and you are protected from losses. For example, if equities perform badly in a year, then you can recoup your losses because property might have outperformed the market.

You could also save in a unit trust that caters specifically for education. Benefits of a specialist education unit trust could include flexible payments, the option to skip payments for up to a year and a tracker that calculates whether you need to change the amount you are saving to reach your saving goal.

You also have the option of opening a unit trust account in your child’s name.

Bursary application tips

Bursars receive thousands of applications every year. Use these tips to make sure that your child’s application is not discarded before the selection process:

.?Find out what the closing date is and apply well in advance. If your child is in matric this year and you have already missed the closing date, then approach the company anyway and apply again the following year.

.?Estimate what your child’s education costs will be. You can do this by using the website www.smartmax.co.za Don’t forget that in addition to the actual tuition costs, your child will also have to fork out for textbooks, stationery, travel allowance and possibly accommodation.

.?Get your child to prepare a personal statement that will tell the bursar why their application is worthy of consideration and why they should be granted a bursary.

.?Consent to share your income. Most bursary applications will require proof of household income. This means both parents have to supply their salary slips. Other proof of income could include social security grants, UIF or disability benefits. Note that the proof of income must be less than three months old.

.?If one or both parents are deceased or the applicant’s parents are divorced, the application must be accompanied by a certified copy of the death certificate or divorce decree.

.?You have to supply a copy of the learner’s latest results?–?for example, if they are in first or second year?–?unless they are in Grade 12.

If your child is in Grade 12, their half-year or trial examination results should suffice or the bursar might expect you to submit an application before the closing date and then submit the child’s matric results as soon as the results are released.

.?Note that the closing dates for bursary applications usually fall in October before the year of study. If you are applying for first- semester financial help via NSFAS, then the closing date for existing students is December 15 and January 10 for matric learners.

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