NOW THAT third level fees are gone, students and their parents can rest easy that the interminable financial burden of college is finally over. Right? Wrong. The Union of Students in Ireland calculate that students living away from home realistically need about £5,000 to meet their expenses for the nine month college year, while students still at home need just over £3,000.
For the "away" students, the £5,000 covers rent, utilities, food, travel, books and other academic requisites, clothes, laundry, medical expenses, social life and other travel and miscellaneous costs. A non tuition fee of £150.00 is also included in that total.
Students who live at home should realistically add a modest "overhead" of about £64 a month, says USI, for the cost of their room and the food they consume at home, with the balance going towards meals at college, travel, books, clothes, socialising and the other miscellaneous costs.
The abolition of fees will cut about a quarter to a third off previous years bills, but £3,000-£5,000 for expenses is still a considerable amount of money for a student or parent to find from existing income. The maximum maintenance grant of £1,600 will make some impact on that total, but it is restricted to only the neediest.
Summer and part time work are the most obvious and immediate way to raise cash for fees. Parents who own their own companies can hire their children for the summer, remunerate them up to their income tax exemption allowance of £3,900 and let the children pay their own college fees. Financial advisers often express surprise that so many parents in this position are unfamiliar with this solution.
If direct employment is not possible, the main banks will loan students money during the college term on foot of at least two thirds being repaid by the end of the term, or in full by the end of the summer. The only problem - but a reality all the same - with these sort of loan arrangements is that you can find yourself repaying one loan with either next year's grant money or with the money you have earned the previous summer.
Student loans require a parent or guardian going guarantor and for many, the loan is taken out in the first place by the parent with the same repayment schedule as that required by the bank (but probably with a lot more leeway for missed payments, and so on ). Personal bank loans cost about 11 per cent APR whether taken out - by parent or student. A credit union loan will cost one per cent per month on the diminishing balance, and is another good option. It has to be said that a bank loan is an expensive way to finance a child or children through college and carries no tax relief the loss of Deeds of Covenant in return for nil fees is something of a blow to high income parents who benefited most from the seven year tax break.
A more effective, but no less financially traumatic way for a parent to provide the necessary finance is to refashion existing debt into one debt parcel. Many people with enough equity in their mortgage (i.e., enough years of capital paid off) use it as the debt anchor in order to pay off personal loans, hire purchase and credit card debt via a more manageable monthly sum. By refinancing all these higher interest rate loans onto a lower rate mortgage contract, you should end up considerably improving your monthly cash flow, enough to realistically finance your children's college costs.
While this extra cash, theoretically at least, appears to cost a lot less than a personal loan, in practice you will probably have had to extend your mortgage contract back up to 20 years. The compound effect of even a low mortgage interest rate over 20 years does, however, amount to a considerable debt burden. The other downside is that you are in no position to take on any new loans or significant credit card bills. You must now discipline yourself and the rest of the family to live entirely within the new monthly cashflow.
Long term planning for your children's higher level education is obviously the key and involves, ideally, a 15 year plus investment commitment into financial products that will yield a better return than any deposit account. Traditionally, these investments have been life assurance related savings plans, but revelations about high costs and volatile markets have discouraged many parents who have discovered in recent years that their funds are not even worth the contributions made.
Many insurance companies have tackled these issues by introducing lower cost, - better performing policies which are only being sold for long term savings targets. Special Investment Accounts, in which a portion of your money is invested in Irish stocks and shares, as well as in safer Government gilts are another option and carry only a 15 per cent DIRT rate.
For parents who have fewer than about 15 years which to put the education nest egg together, the Post Office continues to offer the best returns. Not only are instalment savings and saving certificate rates among the most competitive over a six year period, but they are also state guaranteed. Parents should keep in mind that short term savings and the volatility of domestic and international investment markets do not make for a very sound combination.
One source of finance that probably doesn't get as much attention as it should, is the possibility that relatively well off grandparents will release some of their children's inheritances early in order to help them, pay for their grandchildren's expensive third level education.
Commentators have been pointing out for some time that the late 20th Century is probably the first time in Irish history that so much wealth is being passed between generations of ordinary middle class citizens. High property ownership and the coming of age of occupational pensions has meant that elderly people are sitting on huge asset resources - mainly property.
For many 40 and 50 year old parents of teenagers, the timing of many inheritances could be better the passing on of, say, a £30,000 or £40,000 lump sum may be very welcome in late middle age when retirement is looming, but few would argue that it could be used more productively to pay off a mortgage or meet costly college fees if it was passed on when their families were younger.
Gifts of cash up to a ceiling of £182,550 can be paid to a child without any CAT (Capital Acquisition Tax) being payable, and up to £24,340 CAT free between a grandparent and grandchild. Those grandparents who are worried that they mustn't overdilute their assets just in case they need them for long term nursing home or medical care should keep in mind that all registered nursing home fees and care expenses are totally tax deductible (for themselves or for anyone else paying the bills.)
The banks are loath to give elderly people mortgages on their property unless there is a very sizeable pension income, but Bank of Ireland does have a "Mortgage Extra" product available which is designed for a 7-10 year repayment period and must be paid back by age 70. A good, independent financial adviser should be able to explore these options on your behalf.
