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Education Inflation At 12%: Tackle It With Smart Investments, Cheap Loans, Says Report

Education costs in India are showing a 12 per cent increase, almost double the cost price index inflation rates. BankBazaar’s report reveals the need for smart investments through mutual funds and cheap educational loans to tackle the situation and not go for child education and retirement savings plan to build the corpus 

Education Inflation At 12%: Tackle It With Smart Investments, Cheap Loans, Says Report
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School and college education costs in India have been witnessing significant inflation, with rates around 11-12 per cent compared to the overall cost price index (CPI) inflation of 6 per cent, according to a recent study by BankBazaar.

Education expenses can double every six to seven years and pose a significant financial burden for families. Education costs are becoming the largest expense for Indian families after home ownership, the report titled Inflation, Education and Your Child said.

To highlight the education inflation, the report cited an example of a two-year MBA program at a premier business school that cost Rs. 3 lakh in 2003 and about Rs. 16.6 lakh in 2013 and Rs. 24.6 lakh in 2023, amounting to 11 per cent inflation per annum over 20 years. 

Assuming the same inflation rate in future, the same program may cost Rs 41.4 lakh in 2028, the report said.

Smart Investments Are Necessary

For the purpose of investing for their child’s education, BankBazaar urged investors to not go for child education and retirement savings plans, which combine investing benefits with insurance and offers assured returns.

Investors should instead look for annual rate of return and see if it beats education inflation, it said. 

Further the taxation, liquidity, and adequate coverage for the family’s income needs should be taken into account before making such investments, the report added.

“It is advised to avoid mixing insurance and investment, as assured returns might be much lower than the money needed for education, and premature surrender can lead to significant losses,” the report said.

BankBazaar cited data that equity mutual fund investments through systematic investment plans (SIPs) which on average gave returns of 12 per cent were the best bet to beat education inflation. However, the returns were not guaranteed and could vary.

“Also, with a market-linked investment, such as a mutual fund, you also have the flexibility of liquidation at any moment of your choosing,” the report added.

Education Loan Rates

The report further said that when savings fall short to cover higher education expenses, education loans were the next best option. 

According to BankBazaar’s data, for domestic higher education loans, Central Bank of India offers the lowest rate of interest of 8.10 per cent, followed by State Bank of India and Union Bank of India at 8.20 per cent each.

Punjab National Bank offers a rate of 8.55 per cent. For those considering higher education abroad, Union Bank of India and Punjab & Sind Bank both offered loans at 9.30 per cent per annum, while ICICI Bank offered loans at 9.85 per cent.