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Financial Planning
January 8, 2019

Handle higher education costs like a boss

<strong><em>By: Neil McConnell, Regional General Manager, PPS Financial Advisory</em></strong>

<h2>Putting financial plans to work to handle higher education costs like a boss</h2>

The cost of higher education in South Africa is escalating beyond inflation rates. Unfortunately, neither the economy nor professionals can function without the pool of knowledge that comes out of higher education.

As a result of these growing costs, South Africa witnessed the #FeesMustFall campaign three years ago driven by students across the country. Their objective was to be freed from the shackles of rising education costs and the burden of paying off student loans – that currently sits at R35 billion according to the National Student Financial Aid Scheme (NSFAS) – when they start working.

According to Stats SA’s latest General Household Survey, almost two in every 10 potential students indicated that they could not attend an educational institution (either a school or tertiary institution) due to lack of money to pay for fees.

At the end of 2017, former President Jacob Zuma announced that government will subsidise free higher education for students coming from poor and working-class households which mostly rely on income from salaries and social grants. The threshold to qualify for financial assistance for students from South African households will be a combined income within the household of up to R350 000 per annum – approximately R29,000 per month.

The latest data from the Financial Statistics of Higher Education Report from Stats SA shows a significant rise in government spending for education. Tabling the 2018 budget at the beginning of the year, government announced the largest reallocation of resources towards priorities of higher education and training, amounting to additional funding of R57 billion over the medium term. This is the fastest-growing spending category, with an annual average growth of 13.7%.

However, South Africans should not only rely on government to resolve the issue of rising higher education costs, but realise that everyone has a role to play when it comes to alleviating this financial burden.

The declaration of free higher education was seen as a relief for many poor families, but the cost of private higher education is still expensive and extrapolating these costs for a three-year degree, never mind a post-graduate degree, raises eyebrows for many hopeful parents out there.

Think about the education inflation and the general cost of living in 10 years’ time, the amounts required are quite enormous and need a pro-active approach.

While many South Africans are optimistic about the future of higher education system – its quality, value and costs. It is important to note that whether you are budgeting and saving for higher education, the future is by no means certain.

As the world becomes more technologically advanced, we also need to think about what impact technology will have on the career direction to take and what educational specialisation will be required? Will the rise of technology further increase costs, or will it improve the quality of education and add to the value in skills and knowledge of the educated? This remains to be seen but what is already evident is the manner in which students and professionals are consuming information and gaining new skills.

It is however not all doom and gloom. The priority of education can be covered by a variety of savings and investment options available to parents and professions. Most financial services providers will provide specific choices depending on individual needs and requirements.

<strong>When choosing the option that works for you, it’s important to consider the following:</strong>

<ul>

<li>Does your Employee Benefit Fund have benefits that will cover current and future education requirements should you pass on? Some organisations provide educational benefits via the company group scheme should the breadwinner or employee experience the unforeseen circumstance of death or disability.</li><li>There are various insurance risk products available to professionals who proactively wish to protect the current and future education needs of their children should they pass.</li><li>Savings and investment products can fund future education without any change in your health status. An investment started today for a child’s higher education in the future will make use of compound interest and the performance of the specific funds selected. Generally, the longer your investment period, the better the performance is.</li>

</ul>

It is imperative that we start thinking holistically about saving for higher education. The cost of education will always remain a factor and the burden of saving for higher education will become even more challenging.

Therefore, parents and professionals need to be flexible and look for options that speak to your lifestyle and set aside funds for this purpose as early in your career if you plan to have children.

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