By Kate Ashford - Originally Posted on BBC Capital
Sarah Hosseini’s daughters are only ages four and five, but she’s already thinking about university.
“They’re only 16 months apart,” said Hosseini, 30, who lives in Atlanta and blogs at MissguidedMama.com. “If they stay the course to college, they will be in college at the same time.”
Facing more than one tuition bill in a year is daunting.
Hosseini and her husband opened savings accounts for their children when they were born to help cover university costs, but there’s still anxiety about the future. “We’re extremely nervous as the cost of universities continues to skyrocket,” she said.
At a time when annual tuition, fees, and room and board at a public four-year US college average $18,943, according to the College Board, facing more than one tuition bill in a year is daunting. In the UK, the yearly cost of studying, including tuition fees, accommodation and living costs, was estimated at £22,189 ($34,151) in England and £23,521 ($36,202) in London, according to the National Union of Students.
While formidable university costs are nothing new in the US, tuition fees in the UK have only recently become a big factor. Until 1998, university there was free, and after that tuition fees were capped at £1,000 ($1,552) a year until 2004, when the cap rose to £3,000 ($4,655). From 2012, universities have been allowed to charge up to £9,000 ($13,964) per year for undergraduate courses.
“University costs are probably UK parents’ biggest concern,” said Scott Gallacher, a financial planner with Rowley Turton (IFA) Limited in the UK.
If you’re looking down the barrel of two, or more, university bills, here are some steps you can take now to ease the pain later.
What it will take: You’ll need the discipline to start saving early because there will be years you’ll have double the strain on your disposable income and will have to rely on savings.
Some US universities offer discounts to siblings attending the same school.
How long you need to prepare: Start immediately. “It shouldn’t be a surprise that you’re going to have children who are in college at the same time,” said Julia Chung, a financial and estate planner with JYC Financial in South Surrey, British Columbia, in Canada. “The best thing to do is start planning as soon as possible.”
The sooner you start, the less you have to save each month to meet your goals. “Delaying saving until the child is five, rather than when they are born, means you need to save about 60% more each month,” Gallacher said.
Do it now: Take advantage of savings programmes. In Canada, citizens can save money to a Registered Education Savings Plan, where investment earnings are tax-free until withdrawal, when presumably the child beneficiary is in a low tax bracket. There’s also the basic Canada Education Savings Grant, in which you receive 20% from the government for every Canadian dollar of the first C$2,500 ($1,886) you save each year.
In the US, money saved to 529 education-saving plans isn’t taxed on gains. It is also tax-free upon withdrawal, as long as you use it for educational expenses. Another alternative, Coverdell savings accounts, allow parents to save up to $2,000 a year without being taxed on gains.
Don’t forget to search for scholarships that apply to twins and multiples.
Search for scholarships early. “If you’re two to three years out from a child going to university, it’s a really good time to be looking at that,” Chung said. Encourage your children to investigate what they need to do now, to be eligible for scholarships when the time comes. Scholarshipcanada.com, Scholarships.com and Scholarship-search.org.uk are good places to start.
Don’t forget to search for scholarships that apply to twins and multiples.
Look for sibling deals. Believe it or not, some US universities offer discounts to siblings attending the same school. Deals range from an extra $1,000 in grants to getting a 50% discount on tuition for the second child. “It’s not very common, but there are some [breaks],” said Mark Kantrowitz, senior vice president and publisher of US site Edvisors.com.
This is true in the UK as well. The University of Reading, for instance, offers £1,000 ($1,540) off the first year of courses for any second family member who studies at the same time as another. And Manchester Metropolitan University offers a 5% family discount.
Apply for financial aid. In the US, completing the application for student aid puts you in the running for valuable grants — and you may get slightly more money per child if you’re doubling down that year.
In the UK, at the very least, the expected family contribution will be split between any children in university at the same time, so each child will be considered for more loans and grant aid.
Protect the future. “If parents want their children to finish university without any debt, they need to consider how they will fund this if anything happens to the parents,” Gallacher said. “They should ensure that they have sufficient life assurance, and ill-health insurance, to cover their children’s anticipated university costs.”
Don’t think that your child is going to starve on the streets if they don’t get a university degree within five years of graduating high school.
Keep retirement on track. It bears repeating: Your retirement savings come first. “There are plenty of options to lower college expenses if saving for retirement and funding college aren’t both doable,” said Wes Brown, a financial planner with Rather and Kittrell in Tennessee in the US. If your children have to take out loans, they have a much longer time horizon to pay those back than you do to repair your retirement fund if you dip into it.
Do it later: Encourage a gap year — or more. If one of your college-aged kids is still extremely unfocused or simply unsure about what they want to do, college may not be the best place for them right away.” Chung said. “Don’t be in a rush, and don’t think that your child is going to starve on the streets if they don’t get a university degree within five years of graduating high school.”
Gallacher agreed: “If there aren’t the graduate jobs for them, some children might be better off getting a three-year head start in the labour market.”
Do it smarter: Consider school elsewhere. “If you just don’t have a lot of options and you’re running out of money, there are several countries in Europe where tuition is free, even for international students,” Chung said. Schools in Finland, for instance, charge no tuition, and neither does Germany for undergraduate students.
“You have to look into what the specific requirements are, but if you can afford living expenses, that could be much cheaper,” Chung said. “And what a great opportunity!”