How Do I Finance My Child's Higher Education?
Updated: May 9, 2022
Financing your child's higher education is typically one of your key goals when you're a parent.
With the rising cost of tuition worldwide, though, that may be easier said than done.
It doesn't help either when parents have more questions than answers. What educational loans are available? What is the best education savings plan?
Today, we'll talk about the top choices for parents financing their kids' higher education and how you can manage each option.
Traditional Savings & Investments
In a way, this represents the old-school way of doing it.
You finance your child's education here by putting away money in the bank (savings) or building an investment portfolio that you can cash in on later for their tuition fees (investments).
Of course there's nothing wrong with taking this route. It may just be a little less financially organised in the case of saving, besides also involving fairly low returns.
It can also be a bit risky on the investments side.
There are other ways of setting aside money to grow for your child's educational fees that don't involve as much risk or bleed-over into your other finances.
That's where the next option, child education plans, enter the picture.
By this, we refer to endowment plans, which are like savings and investment plans for your child's education.
Several big companies offer endowment plans in Singapore. They're all fairly similar to each other, though.
Your average child education plan works like this: you pay premiums for a given period, then get returns based on a preset annual interest rate. This lets you use the funds in the plan to finance your child's higher education.
Rates vary on these, as do premium payment periods. Obviously, higher rates with longer payment periods are better if you want to maximise your returns.
It's also best to get a child education plan as soon as possible. That way, you can get better returns at the end of the payment period.
This is generally the last recourse, but it is still worth noting when all other avenues have been explored.
While you can get a loan on your child's behalf, most of the education loans in the country are actually taken out by students themselves.
Fortunately, most education loans have better terms than personal loans.
That's partly because they carry less risk for lenders, what with the funds being sent directly to the educational institutions. (That means debtors won't be tempted to use them for something else!)
Nearly all the banks in Singapore also have education loans.
Several even take part in the MOE's Tuition Fee Scheme, which charges interest on the loan only after the student has graduated.
CPF Education Loan Scheme
One interesting option for those seeking loans for education is actually to use your CPF here.
Under the terms of the CPF Education Scheme, you can use funds in your CPF Ordinary Account to pay for your children's studies.
Your child then needs to repay it with interest after they graduate or leave the educational institution. Payments have to go into your Ordinary Account then.
Note that if you plan to use this option, you have to ensure the child's course is listed as an eligible one. The same goes for the institution your child shall attend.
Now, bear in mind that you can also use more than one of the above options.
For example, it may be necessary for you to use a child education plan with a loan from your CPF to pay for your child's schooling.
What matters is that you pick the option or options that work best for your situation.
For instance, you can't just say that you'll get a savings and investment plan to send your child to school -- you have to ask what is the best education savings plan first.
For help answering questions like these and coming up with a strategy to finance your child's higher schooling, talk to us!
We can connect you with financial advisors experienced in guiding clients through concerns of this type.