University is becoming an increasingly expensive business as governments continue to scale back 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. Studying abroad provides a structured way to discover a new country, giving students a more diverse and rich education than if they had remained at home.
However, the cost can be significant and, in some cases, huge. If your children decide to study at a US university, the tuition fees alone at a public university can exceed $27,000 a year, rising to nearly $40,000 for an elite private institution. Including living expenses, the total cost of a four-year degree can range between $290,000 and $360,000. Although sporting and other scholarships are available, they are restricted in number, and are unlikely to cover the whole cost.
According to the British Council, the average annual cost to international students in the UK (which charges higher tuition fees to non-residents) averages £22,200 a year, rising to as much as £38,000, plus between £900 and £1,400 a month in living costs, as well as £363 for a student visa and a £470 Immigration Health Surcharge. But if your child is convinced they want to study abroad, what is the best approach to managing and mitigating the cost?
Total expenditure on university studies includes tuition fees and day-to-day living costs, including rent, food, clothing and travel. University tuition costs vary considerably around the world. Some countries provide greater funding to higher education institutions, resulting in modest 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 EU countries), while at private institutions in some European countries tuition fees may 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 life cheaper elsewhere, except in certain international cities such as London, Dublin or Geneva. Often there is little correlation between the cost of living and the quality of education – prestigious seats of learning such as Oxford and Cambridge are relatively cheap by international standards.
Obtaining financial aid
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 financial support is provided by the university, international students are in a better position. For example, at Harvard, where more than two-thirds of students receive some kind of assistance, the financial aid policies are the same for US and foreign citizens. All aid is needs-based, and admission 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 total fees and charges for the 2023-24 academic year amount to $79,450.
An EU citizen studying in another member state cannot be asked to pay higher course fees than a domestic student.
On state support, the position is more complex. An EU citizen studying in another member state cannot be required to pay higher tuition fees than a domestic student, which means they are entitled to the same government assistance on tuition fees as the country’s residents. 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.
Luxembourg’s state financial aid for higher education (AideFi) scheme offers grants and loans to full- and part-time students abroad, paid in two instalments per year. Following a European Court of Justice test case, 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, and may pay more than domestic students, with parents expected to meet all the course fees as well as the cost of board and lodging. It may be advisable for students to seek part-time work to help pay for their day-to-day living costs, which is permissible for up to 20 hours a week in the UK.
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 King’s College London and France’s University of Montpellier. These involve students participating in joint research projects or spending a certain amount of time studying at the partner institution, offering a taste of life as an international student at a lower cost.
The Erasmus+ programme, in which the University of Luxembourg and most major European universities participate, is another option. Thousands of students use the scheme each season, spending three, six or 12 months at the partner university, giving experience of study abroad. In the 2021-22 academic year, the most recent for which figures are available, the university was due to welcome 247 foreign students, with 450 of its students studying abroad.
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 benefits of compounding.
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, albeit an ambitious assumption in the low-interest rate environment for the 2010s but possibly more feasible in the future. If your child doesn’t turn out to be Ivy League material, the accumulated savings could be used to bring forward retirement by a few years, or perhaps finance a few dream holidays.
Bear in mind that in building an investment portfolio to provide for education costs a decade or more in the future, cash will be of little use compared with investments that can help protect against inflation.
Bear in mind that in building an investment portfolio to provide for education costs a decade or more in the future, cash will be of little use compared with investments that can help protect against inflation. Universities often raise tuition fees faster than the cost of living, and a sizeable portfolio may look 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 or other income can also boost growth.
Looking for tax efficiency
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 not always 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 eventual inheritance tax liability, although this may depend on their level of disposable income and generosity.
International study can be an exciting opportunity for your children, but not if it reduces parents 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.