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Preparation for Children’s Educational Expenses
Throughout our lifetime, the importance of education increases. With IT progressing and knowledge regarded as the most important asset, the levels of education and income are almost proportional to each other. Therefore, providing our children with education is our most important duty and the biggest legacy we can bestow as parents. In reality, however, the corresponding burden is no piece of cake.
For the past 3 years, the average increase rate for the matriculation fees of Korea’s major universities has reached 7.9%; this is more than twice the inflation rate of 3.3%. The entrance fee and membership fee except the registration fee increased by 3.5 times compared to 10 years ago. For a child graduating from a private college, approximately 50 million won is spent to cover the textbook fee, transportation expenses, etc. The increase in the cost of university education is not limited to Korea. Even in the USA where many Koreans study, the university entrance fee increased by 6%. In the case of state university, the increase rate has reached 14% in 2004. Major private universities’ matriculation fee is pegged at 40 thousand dollars, and that of state universities, at 20 thousand dollars.
How much should be prepared for the children’s university education?
Since the amount of matriculation fee varies, you should estimate such considering the major, university’s location, and other incidental expenses. For example, there is a huge gap between the matriculation fees of a national public university and a private university even for the same department. In the case of medical college, the registration fee of a private university is twice that of a national public university. Aside from the registration fee, other living expenses or boarding expenses are additionally incurred. Thus, the gap between the matriculation fees including the textbook fee per major cannot be ignored. On websites and portal sites related to financial technology, there is a financial calculator that you can use to calculate the matriculation fee, etc. In this case, however, either the inflation rate and increase rate for the matriculation fee are fixed, or the calculator is configured such that the user can enter the figures himself/herself. If the user knows all the variables needed for calculating the matriculation fee, he/she may use this calculator; in most cases, however, this is impossible. In this case, consult with a financial planner. In particular, many CFP certificants have statistics about a recent school expense, the inflation rate, and the investment earning rate. As such, they can calculate your child’s matriculation fee for 4 years and the amount of savings when you pay the matriculation fee in full.
What is the shortest way of preparing for school expenses?
To prepare your children’s university education fund, there are three ways: depending on the present income; preparing through a loan or a scholarship, and; using savings (including insurance). If you prepare using only your income, coming up with a sizable sum in time is difficult. Moreover, you cannot discount the possibility of losing your job. Thus, preparing in such manner is not advisable. A loan for use as education fund or a scholarship cannot guarantee the effect due to the burden of interest rate or the limits applied by a scholarship. Therefore, the most reasonable way is to save a certain amount in advance every month or every year from your income.
When do I have to start preparing the education fund?
The earlier, the better; a reserve increases rapidly, thanks to the compound interest. If the interest applied to a deposit is a compound interest of 6% per year, parents with a 3-year old child should put aside 160 thousand won per month for a 50-million won university education fund. In contrast, parents whose child is 13 years old should put aside 580 thousand won per month. You need to check if a tax exemption benefit is given to the savings product or if it is protected by the depositors’ protection law. The most important thing is to maintain a good saving habit and sustain it. Start with 50 thousand won or 100 thousand won per month. If you qualify for the reserve, you can increase the savings amount gradually. Transfer the savings amount automatically from your salary to your bank account; when you receive a bonus or a special income such as tax refund, be sure to save a certain amount.
What is the best strategy for preparing an education fund according to the child’s age?
When you prepare the education fund, selecting savings or investment product is efficient considering the degree of investment risk that you can undertake.
If your child is aged 11 and below.
You can use a tax benefit product including a tax exemption’s income deduction, etc.
If you plan to save for more than 7 years, you can use the long-term savings for acquiring a house. The long-term savings for acquiring a house are a tax exemption product with the income deduction benefit added to it. Thus, the actual interest is higher by 2% on the average than other products. Since the income deduction benefit is given to personal pension, you can also utilize it. Note, however, that you should pay for personal pension for more than 10 years; the pension is then paid back after more than 5 years, which does not match your child’s period of university education (4 years). Besides, if your child is still young, consider a growth-mutual fund, a long-term bond fund, a long-term bond, etc.
If your child is aged 13~17 years.
You should make a relatively conservative investment. You can utilize the trust fund for stability, middle- and short-term bond fund, accumulative fund, and scholarships installment savings under your child’s name.
If your child is more than 18 years old.
The savings or investment methods you can use are limited. To secure the principal, more conservative investment or savings are necessary. You can also consider using short-term regular savings or regular installment savings, CD or MMF, or short-term bond fund.
What kinds of loans for matriculation fee are available?
If necessary, you can avail yourself of government support and use a financial company’s loan product. Aside from that, you can get a loan from a local autonomous entity, an academic society, or your company.
Government-supported loan for matriculation fee.
For a government-support loan for matriculation fee, the Ministry of Education’s support loan and Ministry of Labor’s support loan are available. In particular, the Ministry of Education’s support loan is offered through general banks at an interest of 8.5%, 4.5% of which is undertaken by the government, and the remaining 4%, by students. The loan limit per person is 20 million won. On the other hand, the Ministry of Labor’s support loan covers the total matriculation fee and applies a 1% interest per year; it is given to the worker as the insured of employment insurance and to children of workers who died due to an industrial disaster. In addition, Nonghyup as a beneficiary of government support is operating a loan system for the matriculation fee of farmers’ children.
Local autonomous entity’s matriculation fee support.
Some local autonomous entities in certain regions operate a school expense support system for members of low-income brackets for separate use.
Academic society’s matriculation fee support.
Organizations such as the Korea Research Foundation subsidize the matriculation fee in full or lend money at zero interest to students with excellent high school records or poor students based on the recommendations of universities.
Company’s matriculation fee support.
If you are a government employee or a soldier or an employee of a public corporation, you can avail yourself of a matriculation fee loan for children. The Government Employees’ Pension Service lends money for the registration fee at Korean and foreign universities through redemption at 3~4 year installments with a 2-year grace period after graduation at zero interest to currently active government employee and their children. In the case of soldiers, the loan is limited to the actual registration fee; for overseas study, up to 50% of the annual school fee is shouldered. For public corporation employees, the children’s matriculation fee is subsidized at the welfare level.
General financial company’s matriculation fee loan.
If you are not eligible for the loan benefits of the government or your company, you should try the bank, mutual savings bank, or credit card company. Each financial company offers different loan products as well as limited benefits to specific clients such as local university students or farmers’ children. Therefore, you should choose the more beneficial product after reasonable comparison.
What kinds of government-supported matriculation fee loans are available?
Recently, the government created trust guarantee funds to implement the plan of having a financial company lend money for matriculation fee and living expenses at a limit of 360 million won for 4 years (9 million won per year) for university students, with the trust guarantee funds providing guarantee.
Ministry of Education’s support loan.
This loan is designed for university students and graduate students, with the students themselves serving as the debtors. If the students are minors, one co-signer such as a parent is needed. Banks lend money, with the government shouldering a portion of the interest and students paying the remaining interest. In 2004, the government’s portion in the 8.5% loan interest was 4.5%; the students’ portion was 4%. The loan limit per person is 20 million won (trust guarantee insurance loan of not more than 15 million won). The principal is repaid at equal repayments for 7 years with a grace period equal to the length of attendance at school or equal repayments within 2 years or lump sum repayment at maturity in the case of short-term loans. Since the support provided by the national treasury is limited, not all students can avail themselves of the benefits. Moreover, such support is operated as a kind of bank loan. Thus, in case of credit delinquency or excessive loan from a bank, getting a loan is difficult.
Loan support for Ministry of Labor personnel, university students.
For a worker studying at a level higher than a technical college, the total amount of matriculation fee is shouldered at a special interest of 1 % per year. The repayment conditions include 2~4 allotment repayments with a 2-year grace period. You can apply at a local labor office by presenting the written notice of registration fee or payment receipt; the actual loan is released at Woori Bank, KB Bank, and Nonghyup. In addition, the Ministry of Labor operates a loan program for the children of industrial disaster victims (fatalities) to cover their university matriculation fee. The loan beneficiaries are limited to the children of industrial disaster victims (fatalities), children of corporal’s compensation pension beneficiaries, and children of beneficiaries with grade 1~7 disabilities. Up to 2 million won is lent per semester per person. The interest is 1 % per year during the grace period and 5% per year during the repayment period (4 years). You should make the equal allotment repayment every month within 4 years.
Matriculation fee loan for farmers’ children.
Nonghyup is operating this loan with the support of the Ministry of Education. It is designed for family heads who are farmers; the students’ parents working in the agriculture sector are the debtors. The loan is payable in 19 years with a 7-year grace period.
Zero-interest matriculation fee loan for university students majoring in science & engineering.
This is available in Nonghyup, which receives government support. The loan amount is allocated to each university. Unlike the general support loan of the Ministry of Education, the government assumes the entire 8.5% interest such that students do not shoulder any portion of the interest.
Which should I prioritize -- our living expenses after I retire, or the matriculation fee of my children?
There are cases wherein you may be tempted to withdraw the money you have put away for your retirement as well as that of your spouse to pay for the matriculation fee of your children. You should not take this risk, however. Most professionals will tell you that using your nest egg for your post-retirement life to pay for the matriculation fee of your children is not advisable. There are other ways of paying for your children’s matriculation fee apart from withdrawing the money you saved for your post-retirement life. Don’t sacrifice the comfortable post-retirement life you have planned for yourself and your spouse; instead, consider all means such as matriculation fee loan and scholarships.
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