How To Fund Your Child’s Tertiary Education In The UK

Having children is definitely not wallet-friendly, and one of the trickiest decisions many parents face is where and how to send their children for higher education. As a university education is often thought of as an essential step onto the career ladder, it’s not surprising for parents to want to provide the best tertiary education for their children.

However, the reality is, quality education doesn’t come cheap.

One of the most coveted countries for higher learning is the UK. According to data released by the Higher Education Statistics Agency (HESA), international students in the UK reached record levels in the 2014/15 intake, with more than 490,000 international students. Of that number, close to 18,000 of them were from Malaysia.

The UK is considered the crème de la crème of tertiary study destinations, with the University of Oxford sitting proudly atop a list of the best universities in the world in 2016-2017. Other universities that are also highly sought after are the University of Cambridge, which ranks fourth, and Imperial College London at the eighth position.

Undergraduate students surveyed in the UK gave a score of 91% for their study experience in the country, and 85% would recommend studying in the UK.

Thus, it is not surprising that 88% of parents in Malaysia will consider sending their children abroad for a better university education.

As with everything else, education in the UK is inflationary as well, at the rate of 2.8%. This is evident in the recent increase in the fee cap from £9,000 to £9,250 a year for local/EU students in England. This will likely have a knock-on effect on the fees for international students, and it will be a double whammy for Malaysians, who also have to contend with currency risks.

How much do you need?

The cost of tertiary education is not only dependent on the country and the university, but also on the course. To estimate the ballpark figure of how much you will need to send your child to university, it is best to find out the cost for a few popular courses.

According to a HSBC survey, Malaysian parents prefer these courses for their children: Medicine (25%), Engineering (11%) and Computer Science (3%). Besides these courses, there are many other courses that may be interesting to your child.

To better understand what each course entails and their career prospects, head over to one of the free seminars available at the Study UK Exhibition by British Council happening on March 18 and 19, 2017, where James Durant from the Universities and Colleges Admissions Service (UCAS) will guide you in your application to your chosen university and course via UCAS.

For example, if you are planning to send your child for one of the most popular courses, Engineering, here’s how much it costs in four top universities in the UK:

	Estimated total fees
University of Oxford	RM501,078.94
University of Cambridge	RM526,674.33
Imperial College London	RM455,302.58
Durham University	RM476,763.32

Fees made up of tuition fees and college costs. Fees are subject to an annual increase.

Living costs vary according to the location and also on one’s lifestyle. According to Durham University, cost of living is typically much lower in the North of England than in the South. In London, living cost for three years is around RM255,953.88 while in Oxford it’s around RM243,451.52.

This brings the total cost of education to at least RM744,530.46 for one to study in the University of Oxford over three years. However, do note that this amount is what it is today and will be subject to inflation and currency volatility. 

Getting a degree has never been less affordable, and in order to send a child for top-notch education in the UK, planning for your child’s university fund early is no longer an option, it’s the only way you’ll be able to achieve it.

If you are planning to send your child to university in the UK in the not-too-distant future, here are some things you can do to cushion some of the financial impact:

If your child is going off to university in the next couple of years

For those with children who are leaving for university soon – currency risks are real. With the plummeting Ringgit on top of the uncertainties raised by Brexit – it has become clear that we can’t depend on the foreign exchange rates we see today. A rising education cost coupled with currency volatility can derail your child’s aspirations of obtaining an overseas education.

In 2010, the exchange rate from ringgit to pound sterling was RM4.9774 to £1. Today, the annual average rate has risen to RM5.4687 to £1. To put this into perspective, the annual tuition fee at Oxford at £23,190 was RM115,426 in 2010, and now it is RM126,819. That’s a whopping RM11,393 difference!

To cushion the volatility, parents can turn to foreign currency current account. This is definitely something you should consider if your child is leaving for the UK within the next few years to hedge your currency risks.

For example, if you are converting RM25,000 to pound sterling, here’s how a foreign currency current account could protect the value of your money:

Date	Exchange rate	Value	Account balance
Deposit Oct. 16, 2016	5.1392	£4,864.57	£4,864.57
Withdraw Mar. 2017	5.4687	£4,571.47	£4,864.57

If you are still in investment mode, you can also invest your funds via a dual foreign currency investment account. This account allows you to withdraw the money in either the base currency or the linked currency.

This is a derivative instrument, which gives you the flexibility of shorter tenure, from one week to three months. Upon maturity you may choose to reinvest for higher returns, or you may withdraw from the account. The balance upon maturity will be principal plus interest earned in either the base currency or the linked currency at the pre-agreed rate determined at the investment start date.

If you have time on your side to plan for your child’s education fund

The amount we are looking at may seem like a massive amount of money (it is!), but it’s not impossible to achieve if you have time on your side. So what can you do to build up a sizeable college fund for your child?

Saving early and consistently is definitely the first step, but the most crucial one is to invest your savings wisely. If you are starting when your child is still young, you’ll have more flexibility to choose your investments and amount to save, as well as more room for investment mistakes (if any).

This includes changing courses or universities as your child grows up and learns more about their aptitude. Therefore, it’s important for parents and their children to explore this regularly as they are nearing university age. Education will keep evolving even as you plan for your child’s tertiary education.

However, planning should begin before you decide on the course or university. Assuming you are starting when your child is one-year-old, here’s an example of how you can achieve RM698,548 to send your child to Oxford to study Engineering.

1. Investing in unit trust

Unit trust allows you to pool your money with other investors to invest in a range of investments at a much lower cost than investing directly in those stocks. These funds are managed by fund managers, who will decide where the fund should be invested. This is one of the safer methods to get exposure to more aggressive returns while managing your risks instead of jumping into the stock market on your own.

For example, here’s how much you can potentially earn in 17 years in a growth fund:

Initial deposit	RM9,000
Annual savings amount	RM7,300
Annual increase in contributions	10%
Investment period	17 years
Estimated average rate of return*	8.75%
Potential returns	RM604,293

* Based on the annualised 10-year return of Eastspring Investments Growth Fund (Mar. 7, 2017)
** Returns does not include investment costs. 

The good thing about investing in unit trust is, you don’t need a huge investment capital and your investment is diversified even within one fund. Essentially by just starting off by allocating RM600 per month and growing from there you’re pretty much on track to hit your child’s funding target.

2. Investing in real estate

Another investment that sees positive capital appreciation is real estate. When it comes to real estate investment, location and timing are the key. Buying a property at a strategic location at the right time will see better appreciation in value. This means looking around and doing your research. The best opportunities aren’t always where you think they are.

For example, according to Global Property Guide, Negeri Sembilan registered the highest year-on-year house price increase at 7.3% (4.6% inflation-adjusted).

If you decide to purchase a property in Negeri Sembilan now, here’s how much you will likely make 17 years later:

Purchase price	RM510,000
Cash outlay (10% down payment + estimated closing fees)	RM51,000 + RM20,000 = RM71,000
Estimated annual interest cost (not inclusive of principal) at 4.40% p.a.	RM20,040
Estimated annual maintenance cost	RM5,000
Gross annual rental (RM1,800/month)	RM21,600
Total cost	(RM71,000+(RM20,040)+(RM5,000*17)-(RM21,600*17) = RM129,480
Estimated value in 17 years (4.6% inflation-adjusted)*	RM1,095,491
Total returns	RM1,095,491 - RM129,480 = RM966,011

* Capital growth is calculated using Capital Growth Calculator. 

Though the numbers for real estate investment look good on paper, there are still risks involved. There is the obvious risk of taking up a property in an area that doesn’t see great returns or worse, stagnates. The other aspect is that real estate investment will require more cash up front.

In the example above, you will need about RM71,000. You also need to have strong enough credit to afford the financing. There are also rental risks, where on months that you are unable to secure a tenant, your costs will go up because you will have to fork out money from your pocket to pay for your mortgage.

If you have strong capital, credit and holding power, real estate can be a good way to invest for your child’s education. However, unless your finances are really strong, it’s likely this will be the entirety of your investment as it is very capital and cost intensive so you’ll need to be aware of the risks involved with the real estate approach.

Bridging the gap between the rapidly rising cost of tertiary education abroad and your child’s financial independence will be a challenge for parents. The cost of sending them to the UK might seem disheartening or downright scary, but as you can see it isn’t impossible to achieve. If you have time on your side, it’s actually very reasonable.

The first step to helping your child achieve his/her aspirations of studying abroad is to know and understand the cost, and be brutally honest of your financial standing and capability.

According to the HSBC Value of Education report, 84% of Malaysian parents wish they had started to plan and save earlier for their child’s education, and most of them want to send their child abroad. While there are many benefits of studying at university abroad, parents must be prepared for additional costs such as travel and exchange rates.

To prepare for that, parents have to start planning as early as possible.

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