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Financial planning for child education: Here's help

October 1 2014

Parents make the mistake of ignoring their retirement goal. Also, it may happen that due to some or the other reason, during the journey, the child education goal that the parents held so close to their heart could not be funded as they would have liked, and there is a shortfall which causes unavoidable disappointment and heartburn.

As financial planners, we ask our clients who are parents to “prioritise” their financial goals, and most of the times the standard reply is that their child’s education is their No. 1 financial goal. And when we tell them that your most important financial goal is your own retirement, the argument does not meet a very enthusiastic agreement by the parents. It’s understandable. Humans are emotional beings and a child holds centre stage in a parent’s life. In my experience, many a times I see that the primary driver for a couple to undergo the financial planning exercise is the “anxiety” of not having enough funds to send the child to a good college/ university when he/she grows up. In this anxiety, parents make the mistake of ignoring their retirement goal. Also, it may happen that due to some or the other reason, during the journey, the child education goal that the parents held so close to their heart could not be funded as they would have liked, and there is a shortfall which causes unavoidable disappointment and heartburn. For such parents, just the awareness that there ARE other options as well for funding their child’s education can definitely prove to be a saviour to them. So, which options are we talking about here, let’s have a look. Option # 1: Financial Aid (Scholarship/ Fellowship/ Grant/ Internships) Unlike say 10 years ago, today we have a plethora of options for financial aid that can ensure that money does not become a roadblock for a student in his/her dream of studying in the stream or university of choice. For example, every academic year, the University Grants Commission (UGC) invites scholarships and fellowships through an online process. Similarly, there are quite a few corporate houses who have dedicated financial aid cells for e.g. Tata Group, Indian Oil, Bharat Petroleum etc. There are many trusts and social organisations who offer financial aid to deserving students for studies in India and abroad. For e.g. Rotary offers an international scholarship program to students between 18-30 years of age upto $ 10,000. For study in the US, the ‘United States – India Educational Foundation (USIEF)’ claims to have awarded approximately 17,000 Fulbright, Fulbright-Nehru, and other prestigious grants and scholarships in almost every academic discipline. For study in the UK, the child can apply to British Council which offers many scholarships depending on the stream that a child wishes to pursue. Further details are available on its website. Back home, for the not well off section of the society, HRD Ministry has a Central Sector Scheme of Scholarship 2014 for College and University Students for students above 80 percentile of successful candidates. There is another scheme “Single Girl Child Merit Scholarship scheme” for meritorious girl child in the family (who is the single child of parents) and has secured more than 60%/ 6.2 CGPA marks/ grades in Std. X examination. Both the schemes have an online application process and further details are available on the CBSE website. Option # 2: Education Loans It might be possible that despite the best of intentions and efforts, a student does not qualify for a financial aid programme. In such a situation too, worry not, thanks to the easy access to educational loans in India. Today, almost every major bank/ NBFC provides education loans. HDFC Bank has even created a dedicated NBFC “Credila”, which only focuses on educational loans. The rate of interest on such loans varies and is usually is in the range of 12-14%. The best part is that there is a moratorium on repayment till the course gets completed and child has to pay after earning so there is no financial burden on parents. Also, the child gets to claim an exemption on the interest (without any capping) u/s 80E of Income Tax Act. Expenses considered eligible for education loan are wide enough to cover not only the fees component but also the books, uniform, travel expenses, examination fees, deposit money, project work expenses, and even purchase of a small vehicle. Conclusion: Preparing a clear investment plan for child’s education expenses is a must and there cannot be any laxity on that part by parents. However, rather than making a mistake of putting the other financial goals on backburner and going overboard on this goal due to emotional reasons, an understanding of the options and “what-if” scenarios when it comes to children’s education can go a long way in helping parents to see this goal in the right perspective and plan it in a relatively stress free way.


http://www.moneycontrol.com/news/education-loan/financial-planning-for-child-education-heres-help_1189670.html