College finance - how to pay your way through expensive maze
Putting a youngster through college, especially if they cannot live at home is a serious financial challenge for most parents, and especially for those whose income puts their child outside the student grant scheme.
How to fund a four or five year third level education (that fifth year being an expensive post-graduate degree) is something that parents need to consider from their children’s early years. It’s why it makes sense to commit your annual child benefit payment, to a good savings account and to also consider investing accumulated lump sums.
Saving the €140 a month (€1,680 pa) child benefit payment in a tax-free State Savings scheme and assuming even just a 1.5% average return over 18 years will return nearly €34,700. Investing the money in a longer term, low cost investment fund should beat deposit returns, but the current 41% exit tax on investment returns is a major disincentive and should be abolished. At the very least, the government should be introducing an ISA, and Junior-ISA - the tax-free individual savings accounts that exist in the UK - that are widely used there to fund third-level education.
With the cost of the 2017-2018 university education year expected to hit €12,500 according to the USI (University Students of Ireland), college-goers and their parents with more than one child in the family and with a moderate income and inadequate savings, would have had to apply for their student fee or maintenance grant by the July 13 deadline.
The SUSI.ie website, criticised in the past for being too complicated and unwieldy now provides an easy to use “eligibility reckoner”. I keyed in the following information: 18 years old; a first year undergraduate doing a level 7-8 degree; one younger sibling and another already in college; parents with joint income of €100,000. The ‘reckoner’ concluded: “Based on the information you have provided, you may be eligible for funding. Please refer to the guidance on making a grant application.”
Clearly, the smaller the family and higher the gross income (from all assets), the lower the chance of qualifying for a SUSI maintenance grant, the maximum of which are in the region of €6,000. For those students who don’t qualify with SUSI, the search for funding will be more precarious.
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Bank and life assurance surveys regularly show that other family members, like grandparents, are generous contributors to the rising education costs of their grandchildren.
A tax efficient option for grandparents with spare cash who also want to minimise the long term inheritance tax bill of their family heirs is to gift the capital acquisition-free gift provision of €3,000 per annum to either help build up an education fund (via a deposit account or investment fund) for their individual grandchildren, or to meet the actual cost of Irish college registration fees, housing or other expenses listed by the USI. There is no limit to the number of grandchildren (or anyone for that matter) that you can gift each year. Even the accumulation of the annual €3,000 gifts has no impact on the lifetime tax-free threshold between grandparents and grandchildren, which is currently just €32,500.
Many third level students and their parents also turn to their banks or credit unions to fund their education costs.
Depending on the course and income prospects for the student once they graduate, banks will lend some or all of the costs. A single, €20,000 loan, repayable over four years from AIB, for example, will cost about €500 a month, repayable immediately, at interest of 8.5%. The total capital and interest will be c€23,500. There is still no official student loan scheme here, though it is under consideration with repayments made up to a decade after graduation and the securing of a job.
It’s worth shopping around for best rates, especially from your local credit union where interest repayments are made on the diminishing balance and not as compound interest and loans repayments are covered by life insurance.
Finally, during the mad Celtic Tiger boom years home-owners with positive equity (at least on paper) were able to draw down equity loans for the purpose of paying secondary, let alone third level education costs.
Today, equity release loans are not available, but your family home still might be able to play a role in paying for your youngster’s expensive third level education if they living away from home.
The Rent-a-Room Scheme allows you to rent out rooms in your house entirely tax, PRSI and USC-free and earn up to €14,000 per annum. Demand has never been higher for student ‘digs’ and many students are happy to rent for five days a week, leaving you with some privacy on weekends (if your own child doesn’t return themselves.)
That €500 a month (or more) renting out your child’s vacant room could go some way to meeting their annual costs. (See www.citizensinformation.ie for details.)
Please send your queries to Jill c/o this paper or by email: email@example.com
(The new TAB Guide to Money Pensions & Tax 2017 is now out. €9.99 in good bookshops. See www.tab.ie for ebook edition.)