Five South African universities have been included in the Times Higher Education BRICS & Emerging Economies Rankings 2015 – a list of the top 100 universities in countries classified as emerging economies.
The ranking reportedly looks at all core missions of a world-class university, using carefully calibrated performance indicators.
Much further down in the assessment, the University of KwaZulu-Natal came in at 47 and the University of Pretoria ranked 77th. Accolades such as this bolster an institution’s reputation, but in terms of student registration, the biggest barrier to entry for many prospective students, is the cost.
The exorbitant cost of attending university in South Africa means that for many parents planning the options for their child’s tertiary education, this route is simply not a financially viable one.
Many universities have levied annual fee increases well above inflation year-on-year – a point noted by Higher Education and Training Minister Blade Nzimande earlier in the year. Declining government funding has been blamed for this, but the end result is a university degree that’s simply too expensive for household budget’s already under pressure.
No time like the present
If parents start saving early enough for their child’s tertiary education, enrolment at a South African university suddenly becomes a possibility.
According to René Grobler, Head of Investec Cash Investments, the sooner parents begin contributing to an investment plan, the sooner their money can begin working for them and thanks to National Treasury’s new tax-free savings initiative launched on 1 March, that time is now.
“Treasury’s confirmation that parents can open a tax-free savings account for each of their children provides the optimal mechanism to begin saving literally from as soon as your child has an ID number,” says Grobler.
Introduced in a bid to turn the tide on non-savings, the tax-free savings initiative aims to stimulate saving over and above retirement-based savings. This provides an excellent opportunity for parents to take advantage of this compelling opportunity to save for their child’s education.
Make education your goal-based saving
As an example, if a parent started contributing R30 000 per year into a tax-free savings account with a 7% fixed interest rate, before their child turns 17, they would have met the current lifetime contribution limit of R500 000.
If they left this in the tax-free savings account until their child turns 18, thanks to compound interest (at a constant rate of 7% per annum) their accumulated savings would have grown to R1,04 Million. A valuable investment in anyone’s language.
Minister Blade Nzimande agreed to a meeting with vice-chancellors to discuss various issues, including what is responsible for driving high costs at universities. But currently, typical first year tuition fees for a student studying a straight BCom at UCT range from R50 000 to R62 500.
According to Grobler, parents using a tax-free savings account to save for their child’s future should regard the investment as a long-term one.
“For clients who exercise the restraint required to leave their investment for the full term, thanks to the positive effects of compounding interest, they will reap the most benefit,” she says.
While Treasury has stipulated that the tax-free savings account offers full liquidity within 32 business days in the case of an emergency (with a minor product-specific penalty fee applying) without any prescriptive terms and conditions on its usage, clients should note that the account cannot be reimbursed with the withdrawn amount at a later stage.
Withdrawals will therefore negatively affect the tax-free growth of the investment over time. Also, it’s important not to exceed the annual or lifetime maximum contributions, since any amount over these thresholds will be taxed at 40%.