Why is an early investment in education important?

By Chethan Reddy

“You have to stay in school. You have to. You have to go to college. You have to get your degree. Because that’s the one thing people can’t take away from you is your education. And it is worth the investment.” – Michelle Obama

The former FLOTUS’s words are more correct today than ever. A college education is more important today than in any time in modern history.

The luxury of a college education

Consider these statistics and facts published in USA Today:

• Americans whose highest level of education is a high school diploma have fallen behind college graduates economically, to the point where the income gap is at its highest point ever recorded.
• In 2015, college graduates were earning 56% more than high school graduates.
• High school graduates were found to be less likely to have a job, less likely to be married, less likely to own homes, less likely to be in a labour union, less likely to contribute to a 401(k)-retirement plan, and less likely to move out of their hometown (reduced ability to participate in labour market).

A higher education in India is almost beyond reach

While these statistics are based on Americans, we have every reason to believe that these trends hold true in India as well. College is perhaps the most important investment of a person’s life, and it’s no longer a luxury for the privileged few because it’s becoming a necessity for all.

However, despite how important college education is now, it remains highly inaccessible. India has one of the cheapest higher education systems in the world. Only 10%  of the students have access to the college system. That’s less than half of the same statistic for China (22%) and just over 1/3 of what American students enjoy (28%). Consider for a moment the fact, that nearly 10 lakh students appear for fewer than 10,000 seats at IIT.

The peaking cost of college education in India

Then consider further that India’s education system is just not that good. India’s highest ranked university is IISc Bangalore, which doesn’t even crack the top 150 in world college rankings. The low supply of higher education in India combined with a weak education system may make many parents think that sending their kids to international colleges will be the best option, although this is usually far more expensive than an Indian education.

The problem of access to higher education in India is not only one of low supply. Tuition rates are also skyrocketing. The class of 2018 at IIM Ahmedabad will pay Rs. 19.5 lakh for their 2-year program. This is a 400% increase from the tuition costs of 2007. If tuition rates continue to increase at this rate, then by 2025, a degree from IIM will cost 95 lakh rupees. A four-year engineering degree will be 30 lakhs by 2030. For many of these education programs, preparation fees such as coaching and test prep cost a mini-fortune in their own right.

Probable ways to make higher education more accessible

Parents have to find some way of paying for their children’s education. There are a few options. One option is for the student to take out loans. However, this is a difficult option for students to take and not one that is best for the Indian economy in the long run. When students take out loans, they feel burdened to pay off those loans as quickly as possible. Therefore, they are more likely to jump into stable and high-paying corporate jobs that they may not even like in order to pay off debt, instead of doing something riskier like taking a chance as an entrepreneur or doing something that they truly like. This is bad for students because job satisfaction is key to a person’s self-esteem, sense of well-being, and overall health.

According to researchers at Manchester Business School, poor job satisfaction was associated with significantly higher levels of mental health problems. Furthermore, if everyone is forced to take a high-paying job to pay off loans, the entrepreneurial sector, which is the lifeblood of a country’s innovation pipeline and ability to stay relevant in the global economy, begins to dwindle. No one has the opportunity to take risks and the country’s economy falters.

Another option is that the government can subsidize more of the cost of higher education, but due to logistical and financial constraints, this option does not look promising for any time in the foreseeable future. The third and most appealing option is a deferred payment model that allows students to put off paying their tuition until they are working. This only demands that a student pays a certain percentage of his income towards his tuition fee, regardless of what post-graduation career track the student takes up. This is an appealing option, as it would allow students to choose jobs that they are truly interested in rather than being pigeon-holed into a corporate position they do not.

Plan: The best, simplest, and the most reliable option!

If you have kids, you need to start saving for their college expenses now. There are many options available to families looking to save money for their children’s tuition fees while also being systematic and prudent with their investments.

There are many reasons that investing in a child plan is a good idea. One child-plan option is a Unit-linked investment plan that combines insurance and investment all in one to most efficiently allocate a family’s financial resources. In order to get a sense of how much you will need to save for your child’s future, you can use our education calculator.

You may believe that you can always start saving later and tell yourself, “We can’t afford to save now…we need to pay the bills!” But putting off these vital investments will come back to bite you and end up being more expensive than ever. So it will be better if you just take simple steps now, many years before you will actually need to use the money, in order to avoid such a crisis. I think it would be wise if you took heed of Michelle Obama’s other half and switched your mentality from–“No we can’t!” to “Yes we can!”.

Featured Image Courtesy: Pexels