The education cost you see today may be very different when your child enters college. Discover how inflation, time horizon, investment returns, and even currency movements can impact your child’s education corpus.
What If the Amount Being Saved Today for Your Child’s Education Is Not Enough When the Time Actually Comes?
When planning for a child’s education, parents often focus on how much they can save every month – through SIP, RD, or other investments.
But the more important question is:
How Much Will the Education Actually Cost When the Child Needs It?
That difference can change the entire plan.
An education course costing ₹1 lakh today will not cost ₹1 lakh 18 years from now. At an education inflation rate of around 9%, it could cost approximately ₹4.72 lakh – nearly 4.7 times today’s cost.
This is why education inflation deserves a separate place in financial planning.
The Timeline Matters
Imagine two parents planning for the same ₹50 lakh education goal.
One has 12 years before the child enters college. The other has only 2 years.
The goal is the same. But the investment strategy cannot be.
Illustrative calculation assuming an 8% annualized return for 2 Years and 11% for 12 Years.
With 12 years available, there is time for the investment to compound. SIP can also be increased gradually as income grows, while an appropriate allocation towards growth assets can help the corpus keep pace with inflation.
With only two years left, there is very little time for compounding to work. The required investment becomes much higher, with less flexibility to take investment risk.
Across the IIMs, the average fee hike between 2022 – 24 and 2024 – 26 batches work out to roughly 18% – cumulative over two years, which annualizes to close to 9%. This is a good place to point to as real-world evidence, not just an assumption
The timeline of the goal matters almost as much as the goal itself.
What If The Child Wants To Study Abroad?
Overseas education brings another variable into the calculation – currency depreciation.
Scenario 1
Suppose a US university cost US$50,000 today. At ₹95 to a dollar, that is ₹47.5 lakh. If the university fee rises to US$55,000, the requirement becomes ₹52.25 lakh, even if the exchange rate remains unchanged.
Scenario 2
If the fee remains at US$50,000 but the rupee moves to ₹100 per dollar, the requirement becomes ₹50 lakh.
Scenario 3
If both happen – a US$55,000 fee and ₹100 per dollar – the requirement becomes ₹55 lakh.
A goal that appeared to be ₹47.5 lakh has now moved to ₹55 lakh.
For overseas education, it is not just education inflation. Currency movements can also increase the rupee value of the goal.
Is The SIP Actually Enough?
Suppose a parent invests ₹20,000 every month for 15 years.At an assumed return of 7%, the SIP could accumulate approximately ₹63 lakh. At 11%, it could accumulate around ₹91 lakh.
Now assume the current education requirement is ₹25 lakh and grows at 8% annually. After 15 years, the projected requirement would be approximately ₹79 lakh.
The same ₹20,000 SIP can therefore produce very different outcomes depending on the return generated, while the education cost continues to rise.
Higher return expectations come with higher risk. The investment approach needs to be aligned with the goal horizon and risk profile, with the portfolio becoming progressively more conservative as the education date approaches.
Start With The Goal, Not The Investment
An education goal does not necessarily have to be funded only through an SIP. A combination of existing investments, lump-sum allocations, SIPs and annual step-ups can be considered based on the family’s cash flow and time horizon.
The process should begin with:
Current Education Cost → Education Inflation → Time to Goal → Future Cost → Investment Required
For overseas education, the exchange rate becomes an additional consideration.
The earlier the planning starts, the more time compounding gets to work. Longer the horizon, more the flexibility to build the corpus gradually. As the goal approaches, protecting what has been accumulated becomes just as important as growing it.
Because a car can be postponed.
A vacation can be postponed.
A discretionary purchase can be postponed.
A child’s education usually cannot.
The objective is not simply to save for a child’s education.
It is to ensure that when the opportunity arrives, the money is ready.
Because the best education plan is not the one that looks sufficient today.
It is the one that is still sufficient when the college admission letter arrives.
To make sure the savings for your child’s education covers inflation, invest in mutual funds with Milestones2Wealth today.
