What are the options for financing children’s studies abroad?
University is an increasingly expensive business. Governments continue to rein in their financial support for further education, leaving parents to foot a greater share of the bill. The cost is compounded if your children decide to study abroad, but if they give you enough advance warning, there are ways to plan.
Until the University of Luxembourg was established in 2003, studying abroad was the only means for young Luxembourgers to obtain a full university education, and it remains an attractive option. It offers access to a different environment and lifestyle – in many cases, without the language barriers young people from other countries may experience. It provides a structured way to discover a new country, giving students a more diverse and rich education than if they had studied at home.
However, the costs can be significant and, in some cases, huge. If your children decide to study at a US university, the tuition fees alone can exceed $70,000 per year, with living expenses on top. While sporting and other scholarships are available, they are restricted in number, and may not cover the whole cost. So, if your child is convinced they want to study abroad, what is the best approach to managing and minimising the outlay?
Understand the costs involved
University expenditure includes tuition fees and the costs of day-to-day living, including rent, food, clothing, and travel. University tuition fees vary considerably around the world. Some countries provide greater funding to higher education institutions, resulting in lower or minimal tuition fees; these include France, Germany and some Nordic countries. The UK is more expensive, especially for foreign students (which now include those from other EU countries), while elsewhere in Europe tuition fees be as high as those in the US.
Cost of living surveys for individual countries can give an idea of how much your children will need to support themselves on an ongoing basis. Luxembourg is expensive by international standards, and your children may find it cheaper elsewhere, except in international cities such as London, Dublin or Geneva. Often there is little correlation between the cost of living and the quality of the education – major seats of learning such as Oxford and Cambridge seem relatively cheap by international standards.
Understand the financial aid rules
There are two types of financial aid: that provided by the state, either to the student or the university; and that provided by the institution itself.
In general, if the financial support is provided by the university, international students will be in a better position. For example, at Harvard, where more than two-thirds of students receive some kind of kind of assistance, the financial aid policies are the same for US and foreign citizens. All aid is needs-based, and admissions decisions are not affected by applications for financial assistance. The university factors in additional expenses for international students in meeting each family’s demonstrated need. It is worth finding out the options available, given that Harvard’s annual fees may reach $72,400.
An EU citizen studying in another member state cannot be asked to pay higher course fees than a domestic student.
Regarding state support, the position is more complex. An EU citizen studying in another member state cannot be asked to pay higher course fees than a domestic student, which means they are entitled to the same government funding for tuition fees as the country’s nationals. However, this does not apply to areas such as student loans, where the rules vary from country to country. In certain countries, students have to rely on bank loans, which can be difficult to obtain without an income.
The Luxembourg state offers grants and loans (CEDIES) to students abroad, with aid paid in two instalments per year. This assistance is also available to children of cross-border commuters working in the grand duchy.
Students in non-EU countries may not be entitled to state help at all, so foreign students may pay more than domestic students, and parents may have to pay all the course fees as well as the costs of board and lodging. It may also be advisable for students to seek part-time work to help pay for their day-to-day living costs.
Encourage foreign study ‘lite’
A cheaper option might be a foreign study scheme offered by the University of Luxembourg, which has links with various leading institutions across Europe, including Kings College London and the University of Montpellier in France. This may involve students participating in joint research projects or spending a certain amount of time studying at the partner institution. Either way, it can offer a taste of life as an international student at a lower cost.
The Erasmus programme – a vast exchange programme in which most major European universities participate – is another option. More than 4,000 students use the scheme each season, spending three, six or 12 months at the partner university, which enables them to experience study abroad, but at a reduced cost.
For parents who will have to meet most or all of their children’s tuition and living costs, there is no instant solution. Planning early is not always possible, particularly if your 18-year old has just decided they wish to go to Yale, but starting to save early is the best way to spread out the financial burden, thanks to the magic of compound interest.
For example, if you begin saving from your child’s birth, paying €500 a month might yield a total of around €175,000 by the time they are 18 – assuming net investment growth of 5% a year, which may be an ambitious assumption in a low interest rate world. If your child doesn’t turn out to be Ivy League material, the accumulated savings could help bring forward retirement by a few years, or perhaps finance a few dream holidays.
Bear in mind that in building an investment portfolio in advance to provide for education costs in the future, cash will be of little use – best choose investments that can help protect you against inflation.
Bear in mind that in building an investment portfolio in advance to provide for education costs a decade or more in the future, cash will be of little use – best choose investments that can help protect you against inflation. Universities often raise tuition fees faster than the cost of living, and a sizeable portfolio may look far less impressive in 10 or 15 years’ time. Any portfolio designed to meet future university fees should include some stock market investment, and reinvesting dividends can also boost growth.
Use tax planning products where possible, as annual savings of 20% to 30% on capital gains or income can add up quickly. However, beware of child-focused investments, which might seem a logical choice to pay for university fees, but may in some cases stipulate that the capital belongs to the child when they reach adulthood – and 18-year-olds are seldom sufficiently responsible stewards of large lump sums, which they may not wish to spend on education. There are also tax-efficient ways for grandparents to contribute to fees that might potentially also reduce their inheritance tax bill, although this may depend on their level of disposable income and generosity.
International study can be exciting for your children, but not if it reduces you to penury. Prudent use of scholarships and state funding, along with a careful choice of institution, can save considerable amounts of money – and an early start on building investments is crucial.