Planning for education costs
Education is the goal with the least flexibility: the admission date is fixed and the fee is whatever it is that year. Planning it means inflating today’s course cost to the admission year and then funding that number, not the fee you see on a brochure today.
Formula
Future cost = current cost × (1 + education inflation)^years to admission
- Education inflation has historically run higher than general inflation, often 8-10%
- Existing earmarked savings are grown at your expected return
- The SIP funds only the gap that remains
Education inflation is the whole story
A course costing ₹20 lakh today becomes about ₹58.7 lakh in fourteen years at 8% education inflation. At 6% it would be ₹45.2 lakh — so two percentage points of assumption are worth ₹13.5 lakh.
Private school and professional college fees in India have risen faster than headline inflation for years. Assuming 8-10% is prudent rather than pessimistic, and overseas study adds currency movement on top.
Starting age changes everything
Beginning when the child is four leaves fourteen years and needs about ₹11,200 a month on these assumptions. Starting at eight leaves ten years and needs roughly ₹22,600 — double the amount for the same outcome.
The admission date cannot move, so every year of delay is absorbed entirely by a larger monthly commitment. This is the goal where starting early pays the most visible dividend.
De-risk before the admission year
Equity funds are appropriate while the horizon is long, but shift the corpus into debt or fixed deposits two to three years before admission. A market fall in the final year is not recoverable when the fee is due on a date.
A common approach is to move a third of the corpus to debt three years out, another third two years out, and the rest a year before, so no single month’s market level decides the outcome.
Loans, insurance, and the sequencing
An education loan can bridge a shortfall and carries tax-deductible interest under section 80E for the applicable period, but it starts your child’s career with debt. Treat it as a supplement rather than the plan.
Keep adequate term insurance on the earning parent so the goal survives a death in the family. Also fund your own retirement in parallel — a child can borrow for education, but nobody lends for retirement.
Example: ₹20 lakh course, child aged 4
- Cost today
- ₹20,00,000
- Years to admission
- 14
- Education inflation
- 8% p.a.
- Cost at admission
- ≈ ₹58.7 lakh
- Monthly SIP needed at 12%
- ≈ ₹11,200
- If you start 4 years later
- ≈ ₹22,600 a month
The course costs nearly three times as much by the time your child needs it. Fourteen years of a modest SIP handles that comfortably; ten years does not.