“There’s an old saying that ‘nothing can be said to be certain, except death and taxes’ but in my view, this could be extended to include the certainty of increasing education costs,” Mr Walsh said.
“Education costs have grown by an average of 5.32 percent annually over the past 10 years, whereas CPI has averaged 2.67 percent, and this trend shows no sign of abating.*
“In addition, the Government announced in the recent Federal Budget that from 2018, total school funding would be indexed to the Consumer Price Index. This points to an increasing shortfall in funding in future years.
“Inevitably, parents will be expected to make up this shortfall by paying for more and more of the cost of their child’s education, whether they are privately or publicly educated.
“Likewise, the Government’s proposed university fee deregulation reforms would mean that the cost of tertiary education will almost certainly increase significantly for Australian families in the future.
“While these reforms are currently being stalled by the Senate, it seems likely that at some point in the future there will be significant changes to the way the education system works. It is possible that Australian families could find themselves in a similar situation to that of the United States, where student loans are the biggest form of consumer debt after a mortgage, having surpassed credit card debt in 2012,” Mr Walsh said.+
Recent data from the Federal Reserve Bank of New York shows not only is student debt the biggest form of consumer debt after home mortgages, but it’s also the worst performing. Arrears levels for student loans are rising, a particularly concerning trend.
“The US experience teaches us a sobering lesson on how paying for education can become a serious burden for families. Saving for a college education has long been standard practice in the US, and increasingly Australian families will need to consider doing the same for university,” Mr Walsh said.
“Such savings shouldn’t just be limited to tertiary education. Having a savings plan to offset the costs of primary and high school can also make a big difference to families.
“It means that at the start of a school year, large expenses such as uniforms, sports or musical equipment, text books, laptop computers and other stationery don’t have to be met out of the day-to-day budget – something that can be especially challenging just after Christmas.
“Instead, a dedicated savings fund can be built up to cover these costs, and other family members such as grandparents are encouraged to contribute during the year, rather than buy toys or clothes that will be quickly outgrown.”
An education savings plan with a friendly society such as the Lifeplan Education Investment Fund has the added benefit of favourable tax treatment. This means that when earnings are withdrawn to pay for an education expense, the proportionate tax that has been paid by the manager is refunded.
“A good education is a more valuable present to give children, and finding ways to make this easier will benefit all Australian families,” Mr Walsh said.
*http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0 March 2015
Lifeplan Funds Management is a specialist business of Australian Unity Investments. It is a market leader in investment and funeral bonds, and a leading provider of education investment funds.