With seats in govt colleges becoming scarce, how to fund higher education of your child?

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Updated: Oct 25, 2018 11:09 AM

At present, while annual average fee of all courses offered by a government university is close to Rs 20,000, that of a private university is around Rs 2,00,000.

education, education sector, inflation, inflation in education sector, government colleges, private colleges, government university, private university, cost of education, higher education, mutual funds, MFs, PPF, ULIP, insurance, FDs, Sukanya Samriddhi Yojana, scholarship, campus placementPrivate universities are now trying to put world class facilities to justify the high fees.

Limited seats and mad rush for reputed colleges of renowned universities have pushed the cut off marks for admission to over 99 per cent. Apart from reputation, affordability of the quality education in government universities also adds to the scarcity. As a result, private universities are flourishing. But, with top students absorbed in low-cost government universities, such universities get the leftover affecting the performance.

Put on the back foot, private universities are now trying to put world class facilities to justify the high fees and to position themselves like private hospitals have put themselves against government hospitals. Arranging scholarships for brilliant students and good campus placement would also help them in closing the gap. But one thing is for sure that private universities will remain expensive and higher facilities will only add to the cost.

At present, while annual average fee of all courses offered by a government university is close to Rs 20,000, that of a private university is around Rs 2,00,000. So, total expense for a 3-year course would be Rs 60,000 and Rs 6,00,000 in a government college and in a private college, respectively. However, if you are planning nursery admission for your child, the costs would go up close to Rs 3 lakh and Rs 30 lakh respectively for government and private universities in 14 years, assuming an inflation of 12 per cent in the education sector.

If your child ends up scoring close to 100 per cent in 12th board exam and finds a seat of his or her choice in a reputed college, arranging Rs 3 lakh would be no problem. However, you should remain prepared for the other scenario, where you may need Rs 30 lakh after 14 years to admit your child in a private university. So, how much should you invest and in which instrument to get the required money when needed?

  1. Mutual Fund: Assuming a conservative CAGR of 12 per cent, you have to start a monthly SIP of Rs 7,400 now to accumulate Rs 30 lakh after 14 years.
  2. PPF: Assuming that the current interest rate of 8 per cent remains steady throughout the investment period of 14 years, you have to deposit close to Rs 10,000 per month in your PPF account to achieve the figure of Rs 30 lakh.
  3. Insurance: To cover the life risk, the parent apart from MF and PPF, should take a 14-year term insurance cover of Rs 30 lakh for the child education only. On the other hand, the parent (assuming the age of 30 years) may take a plain endowment insurance (plan 814 of LIC) of Rs 20 lakh for 14 years by paying Rs 12,333 (excluding GST) monthly to get Rs 30 lakh survival benefit at the end of the term.
  4. ULIP: The parent may also consider investing in unit liked insurance plans to accumulate the fund. Assuming a CAGR of 9 per cent, Rs 9,233 has to be invested every month in ULIP to achieve the figure of Rs 30 lakh after 14 years.
  5. FDs: Low and taxable interest rate puts fixed deposits on a back foot. Assuming a steady interest rate of 6 per cent on FDs, a person in 30 per cent tax bracket, has to invest Rs 13,228 monthly to achieve the figure of Rs 30 lakh in 14 years.

Sukanya Samriddhi Yojana (SSY) is also a good option for the parent of a girl child to accumulate sizable fund, but the cap of 18 years of age on withdrawal and contribution period of 15 years have pushed the product on back foot. However, in case of delayed admission into a graduation course or for post-graduation, SSY would generate over Rs 42 lakh for your daughter after 15 years by investing Rs 1.5 lakh at the beginning of every year at the current interest rate of 8.5 per cent, out of which partial withdrawal may be made after her 18th birthday.

For courses like engineering, the fund required and investments will be three times.

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