What price an overseas education?

Published on May 19, 2013

Stepping up to the financial precipice to send my kids abroad is not my thing

By Aaron Low, Assistant Money Editor

A couple of weeks ago, a friend told me that his uncle was looking to sell his five-room flat and downgrade to a three-room flat.

His uncle wanted to free up some $200,000 in cash to invest; not in equities or bonds, but in his daughter.

See, the young woman - my friend's cousin - did not make it to law school here. So she wants to go to a British university to study law so that she can practise here.

My friend's uncle is not rich. He and his wife are a typical heartlander family. Both husband and wife worked in administrative jobs which did not pay a whole lot. They managed, however, to put two of their kids through school; one to junior college and the other to polytechnic.

Through prudent spending, the couple also managed to pay off their mortgage over 20 years.

Their hope, my friend said, is that the girl goes off to get a first class honours in law, comes back and earns a huge salary to support them in their old age.

It is not uncommon for such families to take drastic moves as cashing out on their asset to provide for their bright young kids.

For the parents, especially those in less well-to-do families, having their kids go to university, especially law school, is a thing of immeasurable pride.

I have two kids, a girl, four, and a boy, 18 months, both of whom I absolutely adore and spoil almost religiously.

But I would not sacrifice my long-term retirement plans, sell my house and place myself near financial ruin just to see my kids get an overseas education.

I'm not saying that parents who do that are wrong; I'm saying that it just does not make sense to do so.

For one thing, getting an overseas education is ridiculously expensive. According to checks by The Sunday Times, it can cost nearly A$200,000 (S$245,500) to get an Australian degree; it costs roughly the same amount for a degree from Britain.

Local universities cost a fraction of the price. A law degree at the National University of Singapore (NUS) for citizens costs about $10,250 in tuition fees a year. A Bachelor of Arts is 30 per cent cheaper, costing $7,650 a year.

The usual argument is that the overseas education brings so much more to the student who studies overseas.

There is a level of prestige attached to an overseas degree, especially if it comes from places like Oxford, Stanford or any of the top global universities.

On top of that, the student gets to experience foreign cultures, matures more quickly and develops into a more-rounded person overall.

It's not true the local universities are of a poorer quality compared to overseas universities.

Granted, NUS and the Nanyang Technological University (NTU) may pale in comparison to Harvard, Yale or Cambridge. Still, NUS and NTU hold their own in the global lists of top universities. NUS was ranked 22nd on the Times Higher Education list, while NTU was 86th.

It is not untrue that studying in London or in the US is a once-in-a-lifetime experience, which probably exposes the student to a lot more.

But is it worth selling off one's property or putting oneself at great financial risk to secure this goal?
My own approach to my children's university education is simple: I will save enough only for a local university education.

I have, for each child, a basic endowment plan. This is just to ensure that there is a base for my savings.

By the time they hit 19, they will get about $30,000. If bonuses kick in, this sum could rise to $40,000 or more.

An Arts degree in 20 years will probably cost a lot more than the $7,650 a year students pay now. Assuming an inflation rate of 2.5 per cent a year, this works out to $12,000 a year.

This means that a four-year course could cost approximately $48,000. Factor in living costs - which could be say $6,000 a year - and the cost of funding one child over the course of a four-year degree will be roughly $72,000 at least.

This means I have to set aside $144,000 for both my children.

The endowment plans will help lighten the load but it's clearly not enough. So I am actively investing in equities, splitting my portfolio into high-yielding stocks as well as growth stocks.

My target is to achieve 8 per cent a year over 20 years, which I think is a slightly bullish estimate. But with this I should be well able to pay for both my kids' local university education.

If either, or both, decide they want to go overseas, my solution is this: I will give them the $72,000 and tell them that they need to top up the difference on their own. It could be through getting a scholarship (although I would probably advise them to think hard before accepting), or obtaining partial funding from bursaries or grants.

Beyond the numbers, I have two more reasons for taking a prudent approach to funding my children's education.

As a parent, I want my kids to get ahead in life but this should not be an end in itself.

What is more important is that they develop into responsible adults; bringing one's parents to near financial ruin for the sake of an overseas education is hardly the example to set.

The second reason is that I do not expect my kids to take care of me and my wife in our retirement years.

Sure, I may be seen as being harsh in not wanting my kids to go overseas. If I can easily afford it, I would. But I'm assuming that I can't both plan for my retirement and save for an overseas education.
My gift to them is simply that when they go into the workforce and earn a salary, they will not have to worry about us.

That's because, hopefully, with the right planning and a dose of luck, I would then have been able to set aside a tidy retirement nest egg for my wife and myself to rely on for the rest of our lives.

aaronl@sph.com.sg