The Price Of A Degree From Harvard

How to educate your child abroad for Rs 8,463 a month. Take care to read the fine print, though

LSE or DSE? Balliol or Venkateswara? If you are a parent, you will face that choice some time. It will be costly either way in terms of money, or in terms of lost opportunity. But what precisely is the financial cost of educating your child abroad?

Lets assume your daughter has gained admission to a two-year post-graduate course at the State University of Ohio. The American university has waived her tuition fees, but even assuming that your daughter is a modest spender, she will need around Rs 4 lakh annually to take care of just living expenses. You need to cobble together Rs 8 lakh within a couple of months because she will need to send the university her statement of finance before getting the final clearance. If your bank balance is not strong enough to take that hit, blame yourself for bad financial planning.

In the United Kingdom, living costs vary depending on which university you want to join. London will obviously be more expensive than, say, Bristol. The living costs for a single person range from 5,500-7,000, that is about Rs 3.19-4.06 lakh annually (assuming 1=Rs 58). The tuition fees range from about 6,500-14,550, that is about Rs 3.77-8.44 lakh.

For instance, for a nine-month M.Phil course at Cambridge University youll need to pay 11,790, that is Rs 6.84 lakh, while youd pay 6,500 (Rs 3.77 lakh) for a one-year course at the University of Reading. If your child is banking on a part-time job to supplement her finances, remember that most institutions discourage their students from taking up jobs. There may be legal restrictions too. So the annual expenditure in England can amount to Rs 8-10 lakh.

In the States, students often do pick up odd jobs on the campus. But you still need to have the lions share of the expenses at hand to prove to the university that you are in a position to sponsor the childs education. The tuition fees vary between $6,000 and $25,000, that is Rs 2,16,000-9,00,000 (assuming $1=Rs 36) while living costs could vary from $6,000-14,000. To survive at Purdue University a student needs $480 per month, while a student at the University of Washington is looking at a

higher budget of at least $900 a month.

Assuming that your daughter will be ready to go abroad for higher education in five years, you will need at least Rs 15 lakh. (Remember, however, to account for a few extra lakhs, since the rupee depreciation we have assumed is minimal.) How do you put together that kind of money? If you deposit your money with a public sector bank, you will get an interest rate of 11 to 12 per cent, which is measly.

Private sector banks like Vysya or Centurion pay better rates 13.5 per cent and 14 per cent, respectively, for three to five year term deposits. For example, if you make a Rs 4 lakh fixed deposit with Centurion, your money will grow into Rs 11,54,375 after five years. The other option is to go in for a recurring deposit scheme. Taking 13 per cent as the annual rate of interest offered by your bank, you can reach the target amount of Rs 15 lakh by depositing Rs 18,043 every month for 60 months.

Now let us assume you need Rs 20 lakh if your child is going abroad 10 years from now. If you park Rs 4 lakh with Centurion, at a 14 per cent rate of interest, your money will grow into Rs 19,08,750 after 10 years. If you opt for the recurring deposit scheme instead, you will have to invest Rs 8,463 for 120 months (taking 13 per cent as the rate of interest) to compile Rs 20 lakh.

If you have a decade to plan, you can also take advantage of growth oriented schemes floated by the Unit Trust of India (UTI) such as the highly-popular Childrens Gift Growth Fund (CGGF). UTI allows parents the choice of making recurring investments or a one time lumpsum payment. According to one investment model, parents need to invest Rs 27,000 only once, when the child is 11 years old, to get a little over Rs 1 lakh for the childs education when she turns 21.

Therefore, if you want to get Rs 20 lakh when your child is 21, you will need to invest around Rs 5.4 lakh now. Moreover, there is a bonus income on the original investment paid every three years last year the bonus declared was 5 per cent. There are similar schemes for children of all age groups from one to ten. But the scheme matures only when the child reaches 21 years. So its of no use for students who want to pursue undergraduate studies.

If you have 15 years left, let us take Rs 24 lakh to be the target amount. If you start planning this early, you could invest in equities to earn some money and then lock in the amount in a fixed deposit. Various schemes like the Childrens Gift Growth Fund mentioned earlier will help you earn around Rs 24 lakh if you invest around Rs 3.3 lakh now.

Alternatively, you could make a recurring deposit under the Childrens Gift Growth Fund. Every month for nine years you have to invest only Rs 56,500 to reach Rs 24 lakh. (If your child is six years now, under this scheme, you need to make this recurring payment only till she reaches the age of 15 to get the repayment when she turns 21.)

The Life Insurance Corporation of India (LIC) has also devised an Educational Annuity Plan for a minimum of five years and a maximum of of 20 years. Under this scheme you can take out a Rs 1 lakh policy for 20 years and pay an annual premium of Rs 4,735 making a total payout of Rs 94,700. At todays rate of bonus the policy holder can expect to gain Rs 2,98,000 at the time of maturity which works out to a yield rate of nine per cent. This may not be particularly high but this scheme has its advantages as it provides a 20 per cent tax rebate and assured return on investment. Manab Acharya, development officer with the LIC points out another plus: The child is looked after even in the event of the untimely death of the insured parent.

If you havent done any planning and have to get the money together in a hurry, there is a last resort. Instead of selling the family silver, try the latest educational loan schemes offered by the nationalised banks. Your child does not have to be Einstein, but Canara Bank, UCO Bank and the State Bank of India need adequate proof that your child has secured a first class at the graduate level.

UCO Bank has another clause it only provides a maximum of Rs 2 lakh, and even that is reserved for students taking up technical courses abroad. Typically, the rate of interest hovers between 14 to 15 per cent per annum.

Sripati Ashok, assistant manager, UCO Bank, Hauz Khas admits: We had a liquidity crunch, so prior to April 1997 we did not encourage credit expansion. But now the banks position has improved so we are giving educational loans. With strained cash flows most Indian banks are tight-fisted about giving educational loans you will have to be prepared to make a forceful presentation of your case.

Among the nationalised banks, Canara Bank probably has the best offering. Desperate parents can get a maximum of Rs 10 lakh released though the banks Vidyasagar Educational Loan Scheme. But you will be subject to the vagaries of the prevailing rate of interest. For borrowing sums above Rs 2 lakh you could be looking at a stiff interest rate of 18 per cent. Most Indian banks give you eight years to repay the loan before applying heavy penalities.