How to save for your child’s university education

Understand the costs, start planning early and explore a variety of savings strategies

Saving for a child's university education can be a financial burden for some parents. Getty Images

In the face of steadily climbing university costs, preparing for your child’s higher education has never been more critical.

From tuition fees to living expenses, the financial burden of university can seem overwhelming, making early and strategic planning essential.

By understanding the true costs involved, exploring a variety of savings strategies and adopting practical tips for maximising your savings, you can lay a solid financial foundation for your child’s academic future without compromising your financial well-being.

Understand the costs

University comes at a hefty price tag for most families these days.

According to Edarabia, tuition fees for undergraduate programmes in Dubai typically range from about Dh40,000 to Dh100,000 per academic year, depending on the university and programme.

In the US, public universities charge an annual fee ranging from $8,000 to $35,000, while private universities can charge between $25,000 and $55,000, based on the programme and duration.

On average, these costs are only expected to rise. From 1980 to 2020, the cost of an undergraduate education in the US went up by 169 per cent, according to Forbes.

You can start by looking at the US Department of Education’s net price calculator to determine what you can expect to pay for tuition.

It is important to understand the costs associated with college and to start planning early.

Here is a detailed breakdown of university expenses beyond tuition:

Room and board: On-campus or off-campus housing, including rent and utilities, as well as meal plans form a large chunk of student expenses.

Books and supplies: The cost of textbooks can be surprisingly high, with some books costing more than $200 each. Some courses might also require additional materials.

Transport: Commuting costs for students living off-campus, or travel home can be costly as well.

Medical expenses: Some universities require students to have health insurance, or there could be out-of-pocket expenses.

Miscellaneous: These could include student services and facility fees, activity fees, as well as personal expenses.

Understanding these expenses can help families plan more accurately for the total cost of university education, beyond just tuition.

It is important to research specific costs at the universities being considered, as expenses can vary significantly.

Start early

Starting to save early for your child’s education is a powerful strategy that can significantly reduce financial stress in the future.

The sooner you begin, the more you can leverage the power of compound interest, allowing your investments to grow over time.

By initiating a savings plan when your child is still young, even modest monthly contributions can accumulate into a substantial fund by the time they are ready for university.

This approach not only eases the burden of student loans but also offers more flexibility in choosing educational institutions.

Early savings can also instil a sense of financial responsibility in your child, as they witness the efforts and planning that go into securing their future.

Additionally, starting early allows parents to explore and take full advantage of various savings vehicles.

Savings strategies

There are several child investment plans in the UAE that can help you start saving for your child’s education.

Companies like Zurich and Life Insurance Corporation offer plans that accrue returns that can be paid out at certain times in a child’s life.

Here are a few effective savings methods for a child’s higher education in the US:

529 college savings plans: These are tax-advantaged savings plans sponsored by states, state agencies or educational institutions that are designed specifically for future education costs. There are two types of 529 plans: Prepaid tuition plans and education savings plans.

Coverdell education savings accounts: These accounts allow families to contribute up to $2,000 a child per year for education expenses.

Savings bonds: Series EE and Series I savings bonds are low-risk savings products that can be used for higher education expenses.

Additional funding sources include scholarships and grants, work-study programmes and part-time jobs, as well as federal and private student loans (as a supplement, not primary source).

While not specifically designed for education savings and subject to taxes, Roth IRAs as well as Uniform Gifts to Minors Act and Uniform Transfers to Minors Act can be used for education expenses as well.

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Saving for your child's university education is a journey that requires early planning, strategic saving and continuous adjustment.

By embracing a variety of savings methods, you can build a diversified portfolio that caters to their financial capabilities and educational goals.

The landscape of university education financing is dynamic, with fluctuating costs and new savings instruments emerging. Staying informed and flexible in your approach allows you to optimise your savings plan effectively.

Ruchi Shukla is an independent education consultant in the UAE