Money
Should you fund your child's foreign education with savings, a loan, or both?
Summary
- Educational financing can vary from person to person. But planning well in advance is essential to building the corpus you need.
As festivities bring families and friends together, dinner table conversations more often than not turn to children and their future. This time it was around higher education, a topic that is particularly resonant for me as a parent of a 13-year-old son.
With high school approaching, I want him to explore the world and its opportunities, so he can make informed decisions about his educational path. Like any parent, this is a top priority for me too, knowing that these choices will shape not only his academic journey but also his future.
I am personally a strong supporter of the Indian education system, particularly higher education, where our institutions offer impressive academic capabilities.
Also Read: Financing your path to success: All you need to know about education loans
However, we do see increasingly students and parents evaluating overseas education for higher studies, with the top five destinations being the US, UK, Canada, Australia, and Singapore. In a recent study, The HSBC Quality of Life Report 2024, we found that 78% of Indian respondents either aspire to send their child overseas to study or already have a child studying in an foreign university. In fact, over two million Indian students are expected to study abroad by 2025.
Funding dreams
An international course is expensive, with the cost of education usually driven by factors such as inflation, currency fluctuations, and increasing living expenses.
To give you some perspective, the annual cost of an international university on an average is around $64,000, so a three- or four-year degree would cost $1,92,000 to $256,000 per student.
Despite the rising cost of international education, many affluent Indian parents are eager to send their children abroad. Their motivations include a desire for better quality of education, availability of varied specialisation options, the competitive edge gained from global exposure, and enhanced employment opportunities in the host countries.
Also read: Study abroad: Indian students can explore these 6 study destinations in Europe
Though parents aspire for international education for their children, not everyone is prepared for it. Out of those surveyed in the report, we found that only 53% of affluent parents in India have an education savings plan, 40% expect their child to take a student loan, 51% are hopeful of getting scholarships, and 27% would even consider selling assets to fund their child’s education.
A growing number of parents in Asia, including India, are prioritising international education as a significant investment for their families.
Despite the high costs, which could account for up to 64% of their retirement savings, 90% of Indian parents are still determined to finance their child's overseas education.
Loan vs savings
Starting early is the first step to planning for overseas education. Create a realistic budget that includes expenses such as tuition fee, accommodation, living costs, travel and payment timings. This will help you plan your savings and manage your cash flow before and during the period of education.
It is prudent to consult with financial advisors or educational consultants as their expert advice can provide additional insights and specialist support to help you make informed investment and credit decisions.
When it comes to payment methods, it would be advisable to look at the tax implications. For example, if students are taking an education loan, one can benefit from the reduced tax collected at source rate of 0.5% as against 5% from remittance above ₹7 lakh.
Educational financing can vary from person to person. But planning well in advance is essential to building the corpus you need.
However, if the student wants to pay the education cost, a loan can help fund her education without depending on the parents. There are families who combine both the options by partly paying for the education from their savings and the funding the rest with a loan.
Also read: How can parents secure the financial future of a child with special needs?
Along with financial preparation, parents should educate their child on managing their finances. A well-structured plan that considers all expenses can lay the foundation for a hassle-free experience.
Sandeep Batra is head, wealth and personal banking, HSBC India.
