April 2012 | www.selectasset.com
International education fee planning updates

Across the world, the headlines tell the story.  “College May Become Unaffordable for Most in the US”.  “College Tuition is Out of Control”. In the U.K., “Rise in University Applications Slows Amid Fears about Degree Costs”. “Students Face Tuition Fees rising to £9,000”.  In Canada, “Tuition Fees on the Rise . . . Again – Students Pay More as Government Pays Less”.  And even in Japan, “Private Spending on Higher Education Rising”.

Students from North America to Europe to Asia have joined in recent protests as the cost of securing their futures skyrockets worldwide.  The rapidly rising cost of a college education coupled with the slow to increase median family income threatens to put higher education out of reach for the generations to come.


In the U.S., college tuition fees increased over 35% in the last 10 years, while the median family income has dropped 7%.  For the 2011-2012 academic year alone, the net cost of a four-year public university increased by 8.3% from last year.  The annual cost of attending a private college typically exceeds a graduate’s annual salary during their first few years of post-college employment.


This year, in the U.K., universities will be given the right to charge tuition fees of up to £9,000.  Almost 75% of universities in England plan to almost triple their fees and charge the maximum.  Research shows that about 50% of current undergraduates would not have started university if tuition fees were at that level.  


Over the past 20 years in Canada, undergraduate tuition has tripled, increasing at a far faster pace than inflation.  In 1977, universities got 84% of their money from government funding, and only 13.7% from tuition fees.  Fast forward to 2007, and only 57.1% came from government funding while a whopping 34.2% came from tuition.  In 2011, undergraduates paid about 4% more in tuition costs than they did the previous year, while inflation rose 1.8%.


A report published in 2010 indicated that the worldwide average for private spending on higher education was 30.9%.  In Japan, however, private spending accounts for about 67.5%.  Private investment in higher education, comprised of spending by households and private loans, increased by 26% between 2000 and 2007.  As of 2010, households were taking on 51.1% of expenditures.  Household spending for tuition fees start between ¥1 million and ¥1.5 million per annum.  Just as in the other countries mentioned, these rising costs force Japan to face the likelihood that fewer students will be able to afford a college education if the trend continues.

Why is the cost of college education increasing at such a rapid and significant rate?

  • Inflation...

Inflation is the natural increase in the cost of living over time.  This increase has historically averaged about 2% per annum.  The inflation of college costs, however, averages 4-6% per annum.  This means that a college education that costs about $10,000 this year will increase by $400-600 by next year.  College costs are doubling every 12-18 years.  The rest of the economy is doubling in cost every 32 years.
Why does inflation in regard to college education increase so much faster?  The obvious reasons are government budget cuts, the cost of replacing technology, insurance costs, and increase in teachers’ salaries.

  • Scholarships...

Scholarships pose a cyclical problem for college tuition fees.  Students who do not receive scholarships for their education actually help pay for those who do!  Therefore, as college costs increase, more students need scholarships to be able to attend.  As the need for scholarships rises, college costs for the remaining students rise, causing more of them, in turn, to need scholarships.  This cycle can go on and on.

  • Demand...

Just as in a typical supply/demand situation, the more students who seek a college education, the more likely it is that the cost is going to increase.  In today’s economy, a high school education is no longer good enough to secure a lucrative job.  The fact that more students are entering college to earn a degree allows colleges to increase their tuition – they know that students and parents realize that they have little choice but to pay up.

Taking a look at the projected growth rate of the cost of college education in the United States over the next 20 years, supposing that inflation remains at 5%, we can expect to see the costs rising to nearly $57,000 USD per annum in public colleges, over $112,000 in private colleges, and a whopping $158,000+ in the Ivy League.  Our education fee calcualators will be very helpfull to project future tuition costs based on your specific cicumstances.  

Fears are rampant that should costs continue to increase, there will not be an affordable system of higher education in a mere 25 years.  Without higher education, and when countries worldwide are faced with such an education gap, it will be very hard to remain competitive in the global economy.

The implications for parents are clear.  Planning ahead has never been more essential than now in regard to your children’s education.  Take control.  Contact Select Asset Management to speak to one of our senior advisors about financial planning for your child’s education.  There is no time like the present to start saving to ensure a secure future for your children.