- Date : 18/11/2022
- Read: 3 mins
Investment plan for financing child’s US college education
An overseas college degree is of great value in the job market. Once your children graduate from a US college, job opportunities open up for them across the world. College education in reputed colleges in the USA and other developed countries are recognized by employers all over the world. Therefore, it is no surprise that sending their children to an American college is on the to-do list for many parents.
Financially it can be a tall order for parents to cover all the education costs. All Indians aspiring for a US college degree must pay the college expenses, or a part thereof, from their pocket to start their foreign study. For an average household, a US college degree could mean a long and meticulous children’s education plan. Such a financial plan needs to be designed and examined in the following manner.
Identify your savings capacity – Affording a US college degree is not everyone’s cup of tea. Let’s assume that you and your spouse are working and earning an estimated Rs 70-80 lakhs per annum. If you are aspiring to send your children to chase the American dream, you must save a significant portion of it. Let us assume that you are already saving Rs 10-12 lakhs specifically towards your children plan cum education fund.
Assess savings/wealth – With your saving capacity identified, you will try to find out if it is sufficient to meet the US college savings plan needs. But before that, you also need to assess the savings you have accumulated so far. Let us assume that you have Rs 10 lakhs in debt instruments and another Rs 30 lakhs on equity instruments.
Based on the present college costs of an American degree, you can calculate an estimate of what it could be say 15 years from now. US education is presently costing anywhere between $32,000 to $60,000 per year. That amounts to Rs 1.0 to 1.9 crores in four years. Considering inflation and dollar conversion, you may need anywhere between Rs 3-3.5 crores by the time your child grows up.
Rebalance your existing savings – In this example, the parent might have to reduce fixed-income investments down to 20%, add gold to the portfolio, accommodate US equity as insulation, and also reduce exposure to Indian equity to 60%. The portfolio gets wider without making too much change in the fixed income and equity break-up. A rebalance 2.0 would be required in five years when you bring your debt and equity exposure to an equal ratio. To protect the savings from market fluctuations, it would be wise to convert the entire fund to fixed-income instruments a year or two before the education.
To sum up, don’t forget to time the withdrawals as per the qualified higher education expenses lined up. The maturity of the investments should be timed as and when the annual educational expenses occur. Expenses towards your child’s college expenses overseas can be made with well-timed and planned investments and regular rebalancing.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.