College Education Funds by Allan

It’s great to hear from families that their children with additional are able to secure a place in training centres and some have gone on to third level education. There are a number of means tested grants that students can apply for which lowers the cost of colleges and universities in Ireland. However, the most recent research I have read states that:

  • On average, parents expect to pay out €5,122 a year to send a child to a third level college or university. If the student has to move away from home to go to college, the expected cost is almost double, at €10,125 (that’s over €40,000 for a four year degree per child!).
  • Over a third of families intending to put children through third level education have savings earmarked for this purpose.
  • Just over half of parents (51%) say they have made financial preparations to meet the cost of putting their children through third level education.

The reason this research was carried out was to frighten me, you, us into taking out a financial product with a Bank, Financial Advisor or Insurance Company. These products are branded very well as “Education Safe Saving Funds” or “College Secure Funds” which are basically names that people in marketing departments have dreamed up to sell more of these products.

Are they any good?

I am not a fan and don’t get why so many parents take out these products. I am not denying that the research is correct and our kids who are going to third level education will cost a lot of money. But I believe there are better ways to get there.

The one reason were I can see the logic in having these types of savings & investment products is if parent were honest and think that they would just spend all their income unless they set up a direct debit that they just can’t break the contract.

What is my issue with these products?

Most of these products have heavy charges, levies and fees attached to them plus large commissions for the seller of the product. In general, these products also have a lot of risk involved with them and carry a warning;

“You could get back less than you invest.”

I also have an issue with the sales people selling these products as they will keep using words like “guarantee, secure and future projected values.” But it is a gamble, nobody knows for sure how much money you will get back and again I dislike repeating myself but it is important.

“You could get back less than you invest.”

If the investment does work out and you make a good return, then the government smiles as they now apply tax on the investment growth! In short you might think you made a few thousand extra but when you get the cheque in your hand, only then you will see that it is missing 30-40% of any gain in the form of taxation.

What solution do I propose?

What I have done personally with my children is taken out government bonds through An Post. These are tax-free saving products with minimum risk, no tax on any interest, easy access within 7-days and no penalties if they need to withdraw their money before the end of the term.

A second option would be to use the money to clear a debt. I am always encouraging parents to clear their mortgage before their kids start college so that they are in a better financial position to better support them around this time. Remember interest rates on personal loans and mortgages are always far higher than the interest we ever receive for having money on deposits or savings.