A close friend of mine has three children. One is already in college, one starts in September and the third is 17 and will do her Leaving Cert next year. You can see where this is going…
Moneytimes by J ill Kerby
My friend and her husband will have paid €11,500 just in college registration charges for child number one. Assuming the fee is capped at €3,000 – a very big if – they’ll dole out another €12,000 for child number two and in a year will start paying another €12,000 over four years if child number three also does a full, four years honours degree course.
That’s grand total of €35,500 just in registration charges for their three children over less than an eight year period – money they were unable to put away into a deposit or investment account for education purposes, “for the simple reason,” said my friend, “that we have only had one full time salary coming in since the kids were little. My part-time work over the years paid for groceries and petrol. The child benefit went to pay for everything school-related and if there was anything left over, for sports clubs, dancing and music lessons and later, grinds.”
Like many parents with bright kids who want to go to college, a large chunk of the cost of their third level education is being paid for from their income and from loans. Their worry is that either they, or their children might have to pay for their future fees – real fees, not just “registration” charges - will be in the form of bank loans.
The government is just starting to explore this funding issue and seem to be leaning towards some kind of student loan option over raising general taxation or simply charging real ‘market’ fees (as in the United States) and then relying on the universities to subsidise students who cannot afford the fees/loans with bursaries and endowments.
With a decision unlikely too soon – this government is precarious enough – parents with children approaching college age still have a little breathing space in which to try and put a realistic funding plan of their own in place if UK style college fees are introduced here.
KBC Bank recently produced the results of a personal borrowing survey. It found that 9% of the adults questioned said they were borrowing for education purposes. Another 10% were borrowing for “refinancing” reasons.
I’ve spoken to many parents over the years – especially pre-2008 - who used refinancing loans to clear or reduce high cost credit card, store card or hire purchase loans in order to then be able to borrow to pay for third level costs. Some even did so in order to act as guarantor for post-graduate loans taken out by their older children. Most were refinancing at very low mortgage borrowing rates, which are, unfortunately, no longer available.
And while refinancing at lower repayment rates is a very good idea, the KBC survey threw up one very alarming result: 53% of those surveyed, who currently have a personal loan, have no idea what interest they are paying though 73% of respondents sensibly opted for fixed repayments and just 27% for variable ones.
Understanding the impact of compound interest is a key step in being a successful, sustainable borrower. For example, the difference between paying 7.49% (KBC Bank, Ulster Bank, Bank of Ireland) and 12.5.% (Permanent TSB) for a €10,000 personal loan over a five year period, an overlap period my friends face, is the difference between paying €3,297 interest and €1,940. This is highly significant if you have this kind of potential borrowing requirement over a number of different three or five year periods as one child graduates and another enters third level.
KBC Bank has been manoeuvring itself for several years into being one of the most competitive mortgage and personal loan lenders (mainly for current account customers) but parents/young people should also be looking into credit union rates that are calculated on diminishing balances rather than via compounding repayments which can make for a very competitive total repayment cost.
The ideal way to meet the cost of higher education for your children, of course, to save and invest from their early age. Scholarships, bursaries and grants are next. But if these are not available, you need a strategic funding plan .
Aim, where possible to pay at least half of the ongoing annual costs from savings and earnings. This might involve some serious budgeting measures and encouraging your children to get summer/part-time jobs.
Shop around for the best borrowing rates, usually offered for amounts of €10,000 and more. Always check comparison sites like www.bonkers.ie and www.consumerhelp.ie
Check your credit score at www.icb.ie, the Irish Credit Bureau. Your chances of getting any loan is poor if you’ve an impaired credit record.