How much should I save for my child's higher education?

Every parent has a moment when the fee notice of an engineering, medical or management college lands in a WhatsApp group and the numbers look unreal. You start wondering how much you will need when your own child is eighteen, and whether what you are saving now is anywhere near enough.

The honest answer is that nobody knows the exact figure. But you can get close enough to plan, with three numbers and a simple calculation. Here is how.

Step 1: Pick a course and find today's cost

Start with something concrete. You do not need to know what your child will study, but you need a working assumption. Choose a realistic path — a four-year engineering degree at a private college, a two-year postgraduate programme, a degree abroad — and find out what it costs today, all in: tuition, hostel, food, books, travel and a laptop.

If you genuinely cannot decide, plan for a middle path and review it every couple of years. A plan built on a reasonable guess beats no plan at all.

Step 2: Grow today's cost by an education inflation assumption

There is no single official "education inflation" number you can plan with. The government's consumer price index for education services rose about 3.9% in the year to September 2026, but that is an average across all kinds of schooling. Private school and college fees in big cities have often risen faster — 8% to 12% a year, according to industry estimates. For a private professional course, it is prudent to assume something like 8% to 10% a year. Treat it as an assumption, not a forecast, and test both ends of the range.

The formula is simple: future cost = today's cost × (1 + inflation) ^ years left.

(Illustrative figures, rounded. They show how costs could grow under the stated assumptions; they are not predictions.)

The gap between 8% and 10% looks small, but over 12 to 15 years it adds up to lakhs of rupees. That is why it is worth reviewing the target every two or three years against actual fee levels.

Step 3: Work out the monthly saving that reaches the target

Now you need to know how much to save each month. This depends on the return you assume, and returns are never certain. Here is the same ₹25 lakh course with 12 years to go, under a range of assumptions.

Illustration: A parent in a Tier-1 city has a six-year-old and wants to plan for a course that costs ₹25 lakh today. With 12 years to go and an assumed education inflation of 8% a year, the target is about ₹63 lakh. To reach it by saving every month, they would need roughly ₹27,900 a month at an assumed 7% annual return, about ₹24,200 at an assumed 9%, or about ₹21,000 at an assumed 11%. If education inflation turns out to be 10% instead, the target rises to about ₹78 lakh and the monthly figure rises to roughly ₹26,200 to ₹34,700 across the same return assumptions. (Illustrative numbers and assumptions only, not a forecast and not a real family.)

Two lessons stand out. First, starting early matters more than chasing a higher return. The same course with only six years to go needs roughly ₹43,000 to ₹46,000 a month at modest assumed returns of 6% to 8% — nearly double. Second, the monthly figure can look large next to your current budget. That is fine. Start with what the month can genuinely carry and raise it each year as your salary rises.

Where should the education money go?

The right mix depends mainly on how many years are left.

• More than 10 years away: there is time to ride out market ups and downs, so many families put a meaningful part in diversified equity mutual funds, alongside safer options such as PPF. Equity has historically been more volatile than FDs but has tended to do better over long periods — with no guarantee.
• 5 to 10 years away: a balance of equity and debt, with the safer share growing over time.
• Less than 3 to 4 years away: move steadily into safer options — FDs, recurring deposits or short-term debt funds — so the first year's fees are not exposed to a market fall.

If you have a daughter, Sukanya Samriddhi Yojana — a government small-savings scheme for a girl child — can be a useful safe part of the plan. Its rate is set every quarter and is 8.2% a year for October to December 2026. Deposits count towards the ₹1.5 lakh deduction (formerly Section 80C, now Section 123 of the Income-tax Act 2025) if you file under the old tax regime. Check the current eligibility, deposit limits and withdrawal rules at the post office or bank before opening an account, and match its timing to when the fees fall due. PPF, at 7.1% for the same quarter, is another safe option open to any family.

Which specific funds or products suit your family is a product-level decision. It should be checked against your full situation, and product-specific advice is given through a SEBI-registered adviser.

Why shouldn't an education loan be the plan?

Education loans exist for good reasons, and a modest one can make sense. The trouble starts when "we will take a loan" quietly becomes the whole plan.

What usually happens is this: the family saves nothing specific for years, the admission letter arrives, the loan covers the fees, and an EMI begins soon after the course ends — often while the parents are in their fifties, still repaying a home loan, and trying to save for retirement. The loan does not remove the cost; it just moves it to a more expensive and less flexible time.

A better order is to save for most of the cost, keep a loan as a back-up for the gap, and decide on it close to the admission year when the real numbers are known.

What should come before the education fund?

Sequence matters here. Before you lock money into a long-term education goal, two things should already be in place.

1. An emergency fund. Without one, the first medical bill or job break forces you to stop or break the education savings. Our guide on how big an emergency fund should be covers this.
2. Term insurance on the main earner. The education goal only happens if the income continues. A term plan large enough to cover the goal protects it — see how much term and health insurance you need.

Costly debt also comes first. If a credit card balance is rolling over, or a personal loan is costing far more than a home loan, clearing it is usually worth more than any education saving you could do with the same money. Once these are in order, the education goal gets its own fixed monthly amount on salary day, in its own account. If you also plan to help with a wedding later, keep it as a separate goal from education.

Mapping goals like this — what comes first, how much each one can carry, and when it starts — is exactly what we do in a first conversation.

How often should I review the plan?

Once a year is enough. Check three things: whether actual fees for the kind of course you planned are rising faster or slower than you assumed, whether the fund is on track, and whether your child's interests have shifted the target. Raise the monthly amount with each salary increase. In the last four years, review the mix as well, so the money that is needed soon is kept safe.