Planning for higher learning: Financial advisers' tips to parents of secondary school students

For years, Fazal Mohammed and his wife have been saving for their two children to go to university. However, the pandemic’s strain on the family’s finances caused them to dip into those funds last year.

His eldest, his son, is now in Lower Six. His parents thought it would be good if he could get an open scholarship from the government to study abroad, but now that option, or any scholarship option, is the only way that can happen.

“I would love for my kids to go abroad and study because it would be good for them to get the experience of working and living out there. It would broaden their horizons. Plus, a lot of the universities are affiliated with big companies so, if they show competence or get recommended, students can get hired off the bat.

“But if he doesn’t get a scholarship I can’t afford to send him away. Even in an average university in the US, not ivy league, tuition is clocking around TT$100,000 a semester. It’s a lot of money!”

However, their finances is not the only concern for the Mohammeds. He said between the rapid spread of covid19 and avid Donald Trump supporters who dislike immigrants, and Muslims, his family has concerns about the stability of the US. In addition, some universities closed their doors because of the pandemic.

Despite misgivings, the family is looking forward to college fairs which are usually hosted by various local embassies to see what programmes and financial aid schools are offering.

In the mean time, the family is thinking about letting him study at another Caribbean country as many Caricom countries have schools with have good programmes, are more affordable, and in case of emergency, they are not too far away to return to TT.

Mohammed is hoping that, hoping by the time his son completes his CAPE exams, the state of the world would settle. Then, the family would decide what move to make.

Nicholas Dean, financial adviser with The Financial Coaching Centre, said it was not unusual that families had to delve into their savings during the pandemic. But, those savings should be rebuilt as soon as people are able.

“For many persons while the pandemic may not necessarily be classified as an emergency, they may have had no choice but to dip into emergency reserves and subsequently tertiary education funding if they experienced a loss of income either from retrenchment or salary reductions.

“In these circumstances the first priority would be to re-establish income and then focus on rebuilding emergency reserves and then restarting savings towards tertiary education. They may also have to utilise a combination of the other tertiary education funding strategies.”

He stressed that there is no one way to save, and any strategy depends on time and the individual’s financial situation.

Some common elements of meeting financial goals are the timeline, the target figure including the impact on inflation, the amount of savings possible monthly or periodically, the present financial resources, and the possible rate of return on the chosen saving and investing instrument.

When it comes to tertiary education, other elements need to be taken into consideration. Parents and students should look into the availability of scholarships – governmental, academic, athletic and talent related, need-based, community-service, identity-based and more.

“With some serious digging, you’d be surprised to see the variety of scholarships available out there. Don’t just assume you can’t qualify for one, do some research as to what’s available and apply, apply, apply.”

Dean suggested choosing a lower cost university to get the first degree, then switching to a higher calibre college for postgraduate programmes. People can also look into the availability of employer-based educational incentives as well as governmental, corporate or private grants.

Other things to take into consideration were tax breaks such as deductions or tax credits, preferential interest rates on student loans with soft repayment terms, whether the student can work and study, whether the course can be done part time or in phases, payment plans with the university, and deferring the course of study until resources are available.

“The most critical variable in all of these is the timeline. With more time on hand systematic savings can be more relaxed, advantage can be taken of the effects of compounding returns, higher return/risk investments can be chosen to offset the negative impact of inflation on tuition and other costs as well as give a boost to savings to take some of the pressure off of cash flow.”

For people with shorter timelines, Jochelle Dasent, another adviser at the Coaching Centre, advised that they be very careful not to invest in long-term high-risk investments that promise “so-called” higher returns on investment. Higher risk investments include stocks on the stock market and stock mutual funds, which tend to give good returns over long periods but may have negative returns in the short term.

Where timelines are much shorter, one to two years, then a combination of the above strategies, minus high-risk investments, may be applied.

“In many cases the use of debt is the only option but this must be used as sparingly as possible and if it can be done in phases then that reduces the interest costs. Parents of tertiary education aged children must balance the risk of foregoing their own retirement plans in favour of financing educational costs as, in the long term, they may become financially dependent on the children in their later years.”

Shorter term instruments can include recurring sou-sous timed to match school fees, regular bank accounts, and money market mutual funds. Credit unions are a possibility but people should be aware of the notice they must give when requesting money from share accounts. She said some credit unions may take up to six months to a year to liquidate shares and sometimes encourage the member to borrow unnecessarily against the savings.

“We also do not recommend the use of any type of insurance policy to fund tertiary education because of high costs and less than stellar returns with penalties for early withdrawal.”