Saving for your children's education

Lifeplan Education Investment Fund

Strategy

The fund can be set up by parents or grandparents for a nominated student, and there is no maximum age restriction for the student. Minimum initial contribution is $1000, and additional contributions can be made as a lump sum of at least $500 or through a regular savings plan of a minimum of $100 per month. Maximum contributions per child are currently $428,000.

Pros

• Tax advantages – if earnings are used for a broad range of education expenses, any tax paid is directly refunded to you.
• Costs covered include a wide range of full-time and part-time education, and programs for children with physical, intellectual or learning disabilities. Expenses include tuition fees, uniforms, a living allowance and accommodation expenses.
• Converts to an insurance bond if you decide not to use the earnings for education.
• You can select any one or a mix of 16 investment options from six different investment managers from cash to share investments.

Cons

• Fees such as management costs apply.
• No longer tax-free if you don’t use the earnings for education expenses.

ASG The Education Fund

Strategy

With TEF the earnings of the investments of all parents are pooled to benefit only the children who enter and successfully complete eligible tertiary education. Your contribution is based on the age of your nominated child when you enter TEF (maximum entry age is 10), star ting from $11 per week and increasing by 8% per year throughout the contribution period. 

According to ASG projections you could receive up to $9289, which you could use for secondary education – your total contributions after fees. If your child becomes eligible for the tertiary education benefit, assuming returns of 7% per year they could receive an additional $10,538. ASG also offers two other plans, one of which can only be taken in conjunction with TEF. Taking up one or both of these plans could increase your investment.

Pros

• Provides a tax-effective option to save for education.

Cons

• Any investment earnings and tax refunds are transferred into the scholarship pool. 
• Only your contributions after fees are refundable should you decide not to continue with the investment (there can be deductions if the return of the investment was negative). 
• Very restrictive conditions on access to the earnings and tax refunds of your investment. To get the maximum benefit, your child must study full-time for three years and satisfactorily complete each year of study. If your child elects a one- or two-year course, they only receive one or two years’ worth of the benefit. According to ASG, between 2009 and 2011 only about half of the children whose parents invested in TEF were beneficiaries after they started an eligible three-year tertiary course. While some children could have delayed their tertiary education, this still means a large percentage of ASG’s members missed out on their investment earnings. 
• No choice of investment options – TEF uses an investment strategy they describe as “conservative-balanced”. 
• Establishment and ongoing fees apply.
• The TEF benefit for secondary and tertiary education is too low to cover a substantial part of the costs.