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Tuesday, April 1, 2008
Tertiary trauma

South Africa’s cost of tertiary education is rising higher than the official interest rates and household income, triggering an urgent need for parents to start building reserves for their children’s post-matric education. 

“In the recent past the costs of university education have risen at an alarming rate, which has meant that some parents cannot afford to educate their children at a reputable academic institution,” says Jeffrey McDonald, First National Bank’s Head of Products.
The Universities of Witwatersrand, University of Cape Town (UCT) and University of Johannesburg (UJ) indicated that for this year fees will increase by 10%.
The recent annual wage increases have often been below inflation, making tertiary education even more unaffordable.
Tertiary education fees vary according to university, degree and faculty. An undergraduate degree at Wits could cost anything up to R46 000 per annum, a Medicine degree at UCT could set parents back by R60 000 per annum and R35 000 for an Engineering degree in the University of KwaZulu Natal.
These figures also include necessities such as books, residence, and food. The transport costs are not included. Thus, over a period of four years the total costs of a degree could reach a staggering R180 000 or more.
To determine how much parents need to save towards their children’s tertiary education, Mr McDonald said they need to find out the total cost of the course of study their child wants to pursue over a year, for example R35 000. They then need to factor in an 8% to 10% inflation per annum and then calculate the lump sum they will need over the course of the degree to cover the full costs of a particular course. Parents can then ascertain how much they need to invest each month to ensure they have sufficient money available when their child reaches an age when requiring tertiary education.
However, he said parents need not despair as there are various means made available through banks and other financial institutions to fund a child’s education, for example, parents could put aside money towards their children’s education by opening up a savings or an investment portfolio account.
Parents could invest in cash, shares or even in pure unit trust portfolios to help build up a substantial amount of cash to meet educational costs. Alternatively or even in addition they could save by putting a large portion of their year end bonus into a suitable savings vehicle,” he says.
Parents pinning their hopes on bursaries should remember that these tend to be reserved for stellar performers and are often usually scarce particularly for under-graduate degrees.
There is also the National Student ¬Financial Aid Scheme (NSFAS). This is a form of student loan that is made available by government to help struggling candidates.
Mr McDonald said that FNB also offers a student loan, namely the Life Start Student Loans. It offers loans ranging from R4 000 to R60 000 per academic year.
He said Student Loans above R15 000 will be priced at Prime while the post graduate rate for repaying the loan is usually Prime -2%.
He said the bank grants students a six month grace period on capital repayment after graduation. However, he advises prudent parents to pay the ‘interest only portion’ for the study duration, an often affordable option, which will ensure that the amount of the loan at the end of the student’s studies is a far smaller amount, making repayment much quicker and easier,” he adds.
To apply for a Life Start Loan parents can visit their nearest FNB branch and speak to a branch consultant.

Copyright © Insurance Times and Investments® Vol:21.3 1st April, 2008
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