Are you saving enough for your child’s education? Think again……..

Many teachers may ask this question to your child in school – “What do you wish to become when you grow up?” In their innocence, children may answer, “astronaut, scientist, football player, cricketer, swimmer, actor, dancer, etc”. But on a serious note, you too may have some thoughts about your child’s future, the beginning for which may have been made with an admission in one of the best schools in your neighborhood.
But this is just the first step in the education graph of your child. The bigger steps (decisions) would be taken after Class X and Class XII. But what about costs? Have you planned for the money needed to educate your child? This could be one of the biggest corpuses you need to raise after your corpus for retirement. If one breaks up the cost of education as school and college education (which includes graduation and post-graduation), the latter would consume most of your savings. For a start, let us look at the current cost of graduation and post-graduation for some of the professional courses in India and abroad.
Recently, there was an increase in course fees announced for the IITs and IIMs. While IIT fees were hiked to about Rs.2 lakhs per annum, IIM fees were increased to about Rs.20 lakhs for 2 years. Thus a 6-year (4 + 2 years) IIT plus IIM combination would cost about Rs.30 lakhs today. This excludes the fees parents pay for coaching their children for the IIT JEE (Joint entrance exam) as well as IIM CAT (Common Admission Test).
Then there are many parents who also dream of a foreign degree for their child and one of the most coveted qualifications is a Harvard MBA. The current all-inclusive cost as per the HBS (Harvard Business School) website^ is about to USD 2 lakh or over Rs.1.3 crore (at the current exchange rate) for the 2-year program. Of course, this is assuming your child satisfies all other criteria for admission to this prestigious institute.
For those of you who aim for a medical profession for your child, the fee structure is about Rs.35 to 50 lakhs for a 5-year MBBS course in a non-aided medical college. However, if your child procures admission to a government aided college, the costs are far lower. On the other hand, a dental course (BDS) can be completed in half the cost at about Rs.20 lakhs if not higher. A Post Graduation and a super-specialization may set you back by another Rs.40-50 lakhs. Thus to become a doctor with a super-specialization may cost about Rs.1 crore today (in non-aided colleges without capitation). The cost would be higher if any specialization is done overseas*.
What would be the cost of a professional qualification for your child in the future? The below table provides these estimates by extrapolating current costs for periods after 5, 10, 15 and 20 years assuming an inflation rate of 5% per annum.
(Estimated Cost in Rs. Lakhs for the entire course)
Time Frame | IIT+IIM Course | Harvard MBA** | MBBS | BDS (Dental) | Post-Graduation + Super- Specialization (Medicine) |
Current | 30 | 130^ | 35-50 | 20 | 40-50 |
After 5 years | 38 | 166 | 45-64 | 26 | 51-64 |
After 10 years | 49 | 212 | 57-81 | 33 | 65-81 |
After 15 years | 62 | 270 | 73-104 | 42 | 83-104 |
After 20 years | 80 | 345 | 93-133 | 53 | 106-133 |
For illustration purposes only. Numbers are approximate.Inflation of 5% assumed. Numbers could be higher if inflation in education rises more than 5%. ** includes hostel, utilities and insurance cost.
So how would you save for this important goal? Let us look at an example. The below table illustrates, the approximate monthly SIP (Systematic Investment Plan) amount that you need to reach a corpus of Rs.1 -3 crore after 15 years. The SIP amount varies with the return on investment assumed. The assumed returns may be higher for a portfolio of equity mutual funds and relatively lower for debt or hybrid funds.
Table illustrating SIP amounts per month to reach respective corpus.
Corpus after 15 years | Assumed Return on Investment | ||
12% | 10% | 8% | |
Rs.1 crore | 19,819 | 23,928 | 28,707 |
Rs.2 crore | 39,637 | 47,856 | 57,414 |
Rs.3 crore | 59,456 | 71,783 | 86,121 |
For illustration purposes only.
The above table gives you an idea of the savings needed to meet this important goal. If you haven’t planned yet, it would be prudent to start NOW. You may enroll for a SIP at the earliest in a fund which suits your risk appetite and start building the corpus for your child’s future.
^http://www.hbs.edu/mba/financial-aid/Pages/cost-summary.aspx
* Source for medical education costs – Internal Estimates based on best efforts.
All costs provided herein are for illustrative purposes only and are obtained from sources believed to be reliable. The actual costs may be higher or lower depending on various factors. Information contained in this article is not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.