Not-so-free education

Even though fees for third level are no more, the costs of putting children through university can still be significant. But there are a number of ways to help manage the expenses. Caroline Maddenreports

Those hated back-to-school ads have started up already, serving as an unwelcome reminder that the summer that never was is drawing to a close.

However, while schoolgoers may dread the return to the daily grind of conjugating verbs and solving quadratic equations, chances are their parents are even more stressed out from trying to juggle the spiralling costs of our free education system.

Gone are the days when new books and uniforms every September were the sole education expenses faced by parents.

Extracurricular activities such as school trips, soccer camps and dance classes are now de rigueur at primary school level, while voluntary contributions to public system schools and supplementary grinds for school children have become standard at second level.

Research published yesterday by Bank of Ireland Life reveals that eight years of primary school education now costs a total of €4,000 for each child, while the six years of secondary level schooling will set parents back €4,800.

Although sizeable, these outgoings pale into insignificance when compared with the cost of bankrolling your offspring through university.

Third-level fees may have been abolished but degrees still don't come cheap in the Republic, with the annual cost for a student living away from home totalling €7,500.

This means that the cost of financing a four-year degree course comes to €30,000, while the total cost of educating a child to degree level now stands at almost €40,000.

And if universities have their way, these costs will shoot up even further.

As a result of the "funding crisis" at third level, the heads of Irish universities have been calling for the reintroduction of third-level fees.

Minister for Education Mary Hanafin ruled this out last week, but can parents be sure that the Government won't execute a volte-face on this issue?

While there are a lot of unknowns, such as university fees, the key to funding your child's education is to begin planning from day one, estimating costs and calculating how much you will need to save or invest to be in a position to meet these costs without undue strain.

Unfortunately there are no magic solutions, but there are five funding strategies worth considering.

1. Save child benefit payments with An Post

One of the simplest and most popular methods of building up an education fund is to salt away your child benefit allowance, currently €160 a month, before you get your hands on it and have a chance to spend it. Simply put, this sum set aside every month would produce an impressive nest egg of almost €35,000 by the time your child turns 18, before factoring in any indexation or interest.

An Post's Childcare Plus product is tailored specifically for this purpose. Parents can request that their monthly child benefit payment is deposited directly into the account by the Department of Social and Family Affairs.

Funds left on deposit for five years will earn a guaranteed 20 per cent tax-free interest rate.

2. Open a savings or investment account with a bank or insurance company

For parents who developed a savings habit through the SSIA scheme (the Government's high-interest Special Saving Incentive Account), one alternative is to divert some or all of the €254 monthly contribution which previously went into their full-contribution SSIA account into a regular savings account.

Bank of Ireland Life offers a regular savings plan specifically targeted at parents saving for their child's education - SmartChoice Education - which is linked to the stock market and offers a 25 per cent loyalty bonus if you commit to saving regularly for a seven-year period.

The minimum payment is €100 a month, which means that SmartChoice Education is suitable both as an SSIA-replacement savings vehicle or for parents who wish to put aside their child-benefit allowance.

Taking the primary school years alone, a regular saving of €320 or two child benefit allowances in our SmartChoice Education plan could produce a lump sum saving of more than €40,000 to put towards education costs, says Bernard Walsh, head of investments, Bank of Ireland Life.

Meanwhile, Michael Kiernan of myadviser.ie recommends the suite of investment funds available from RaboDirect, NIB/ Danske Bank and Quinn Life, which he says are a good way of getting your toe in the water of investing as the funds require very small minimum investments.

However, once your investment reaches a certain size, there are other products which will offer better value for money, he adds.

3. Ask family members to contribute to education fund instead of presents

Most parents find themselves inundated with a deluge of cuddly toys and cute baby clothes when there is a new addition to their family.

This extravagant showering of gifts is then repeated every Christmas and birthday and tends to far exceed the young child's needs or wants.

One alternative is to tactfully suggest to doting grandparents, uncles, aunts and godparents that they could make a contribution to the child's education fund instead on these special occasions.

While this may seem rather mercenary, ensuring that your child gets the best possible education makes far more sense than stockpiling unused baby paraphernalia.

Unless you have particularly generous relatives, they are unlikely to foot your child's entire education bill.

However, such a fund could nevertheless help to make your child's school and college expenses more manageable.

Michael Kiernan of myadviser.ie points out that if the child takes an interest in the education fund and how it is invested, they can learn a lot of valuable lessons.

"It educates the child about investing, about how to make money grow and wealth management from a very young age," he says.

4. Pay off your mortgage

Simon Shirley, financial planning director at BDO Simpson Xavier, suggests that parents may wish to accelerate their mortgage repayments rather than making regular contributions to an education fund in a savings account.

If money is needed at a future date, for example when your children go to college, you can then take a top-up loan against the mortgage.

However, Mr Shirley says that many people would still prefer to have a separate savings account, earmarked specifically for their child's education.

"You can always dip into it for a rainy day," he points out.

Richard Morton, a director at Moneywise Financial Planning, believes that the psychological aspect of paying off your mortgage at an accelerated rate must be factored in.

"People get a great sense of relief by paying off their mortgage," he says.

However, this strategy has a number of shortcomings.

"If you pay your mortgage off you'll end up with a mortgage-free house but with no access to the capital," he explains.

"There are plenty of asset-rich and cash-poor people in the country that have seen the value of their house increase considerably in the last few years and yet still find themselves struggling financially because they've no cash in hand.

"It just becomes very awkward; by the time your kids reach college-going age, or secondary school," Morton says.

"You will have less of a mortgage to pay but if you need a lump sum then you have to now remortgage, which entails considerable cost and time and effort."

5. Invest in student accommodation

The single biggest expense that parents will face if their child flies the nest and moves away to college is the cost of accommodation.

In reality, many parents manage to fund primary- and second-level education costs out of their day-to-day budget, but this becomes untenable at third level if you are spending in the region of €4,000 a year on your child's rent alone.

In the past, some parents successfully combined a shrewd property investment with providing a roof over their child's head during their college years.

Rather than shelling out thousands of euros on rent to a landlord, they invested in student accommodation.

They then used money that would otherwise have been paid in rent and which was supplemented with rent from their children's roommates, to meet some of the mortgage repayments instead.

Simon Shirley of BDO Simpson Xavier says that this strategy was a banker in the past - parents enjoyed huge capital appreciation while safe in the knowledge that their child had good quality accommodation.

However it is simply not as compelling an investment these days as it was 10 years ago, he says.

Potential investors in this market need to be thinking long-term now, advises Shammy Khan, head of EBS Mortgages.

"I don't believe there is a quick buck out there to be made any more."

Michael Kiernan of myadviser.ie suggests that parents could invest instead in a property fund which is performing well, for example a fund which was invested in the European or Asian market.

By the time their child is heading to college, take the cash out of the fund (which will hopefully have outperformed the Irish market) and use the proceeds then to buy a student property for them.