there are drawbacks, explains David Marchant.

By the year 2,000, it will cost an estimated US$100,000 to put a student through a four-year college programme. One of the biggest issues facing parents today is how they will pay for it. In an increasingly competitive world, a college degree is almost a pre-requisite if a young person is to land a well-paid career position with prospects. As a result, more parents than ever seem prepared to make the required sacrifices to give their children the college education they themselves may not have had. One of the most difficult decisions is where to invest their savings.

Savings accounts with banks or deposit companies are safe and money can be quickly taken out whenever it is required, but they offer low investment returns. Other forms of investment, such as mutual funds and stocks, can offer more attractive returns.

For example, a total of $5,000 invested in December, 1982, in the nine companies which made up the old Bermuda Stock Exchange Index would have been worth $21,000 ten years later, says James McKirdy, an investment officer with the Bank of Bermuda. That represents a total growth rate of 321 percent, or an annual compounded rate of 15.47 percent, says McKirdy.

The calculations are made on the basis that an annual dividend of five percent is paid out and that the dividend is then reinvested in a deposit account, earning seven percent interest, to give a total growth rate of 7.5 percent per annum, which McKirdy says is probably a conservative figure.

One of the problems with this form of investment is that it requires constant monitoring and also carries elements of risk. There may be a dip in the market when the time comes to pay college fees necessitating you to sell out cheaply.

Many parents don't have the discipline needed to keep moving their money around to take advantage of emerging opportunities. Others can't resist the temptation of cashing in some of their stocks or bonds to pay for something they desire, such as a holiday or a household appliance. They may have every intention of reimbursing their child's savings plan, but often lack the discipline to do so.

As a result, many parents are drawn to the two education-oriented savings plans in Bermuda: The Canadian Scholarship Trust Plan (CSTP) and Heritage International Scholarship Trust Fund (HISTF), which have their operational base in Canada. Both schemes seem to enjoy a good reputation on the Island and are widely recognised as being probably the best vehicles to put your money in, but only if you are fairly certain your child will go on to post-secondary education, more of which will be explained later.

CSTP and HISTF are quick to point out that they operate on a non-profitbasis.

But what does this mean? One offshore investment advisor, who works for a local insurance company, says the term is somewhat misleading.

"They charge fees to their customers and their sales agents are paid competitive commissions, otherwise they wouldn't sell the product,'' he says.

"It is not strictly accurate to say that people are not making a profit from this because some of them are.'' It is true that the marketing arms of both CST and HISTF are run on a profit basis by sales staff working on commission. But both organisations counter this by pointing out that they are overseen and steered by non-salaried people. For example, Bermuda Monetary Authority chairman Mansfield Brock, Jr.

sits on the main board of CSTP.

CSTP is by far the most widely-used of the two educational scholarships in Bermuda, having been around for some 25 years. CSTP has helped over 30,000 graduates and has sold 17,000 agreements in Bermuda alone. HISTF, on the other hand, has only been marketed in Bermuda since September, 1988, and does not expect to a pay out its first local scholarship until this year at the earliest. HISTF, which is ultimately owned by one of the world's largest insurance conglomerates, Allianz of Germany, says it has awarded scholarships worth some CD$75 million (US$58.5 million) to over 21,000 students who have enrolled in its programme and claims to have 250,000 children enrolled for future scholarships.

The two schemes are basically the same. Subscribers pay regular premiums for a number of investment units on the principle that: the more units you buy, the more you eventually get back.

To enrol a child under one year in CTSP, for example, it is estimated that a person would have to invest CD$25,215 (US$19,667) over 205 months (CD$123 or US$95.94 per month) to meet fully the projected cost of a four year post-secondary education.

It is projected that CD$22,275 (US$17,374) would be returned to pay for the first year of education, and CD$24,000 (US$18,720) for each of the second, third and fourth years, resulting in a total amount of CD$94,275 (US$73,534) paid to the subscriber.

One-time enrolment fees must be paid at the outset and currently run at CD$200 (US$156) per unit to join CSTP and US$125 per unit to sign up with HISTF, although HISTF's units are half that of CSTP's.

Banking charges must also be paid, with a current charge of CD$9 (US$7.02) per year per scholarship with CSTP and between US$10 and US$75 with HISTF, depending on the size of your scholarship.

In both schemes, all contributions are placed into a pool to ensure far greater rates of return than a person would get if they invested their money individually. Money is only invested in guaranteed investments, like Government-backed bonds, to provide maximum safety.

CSTP claims to have over CD$530 million (US$413.4 million) on deposit worldwide, and says it has a growth rate of CD$6 million (US$4.68 million) every month. HISTF says it has over US$226.2 million currently in trust.

When a student is ready to go to college, all of a subscriber's principal investment is returned to help pay for the first year of post-secondary education. Interest from all the plans is held in a trust and is distributed to the student over the second, third and fourth years of study.

The biggest drawback with both schemes is that a contributor who leaves the programme only gets back the amount they put in. So if your son or daughter is not bright enough to attend college, or simply does not want to go, the investment scheme has been a waste of money. The interest on their principal helps to swell the general pool to the benefit of other children who do eventually go on to post-secondary education.

This is the biggest advantage of these scholarships: subscribers who complete the programme benefit from the misfortune of those who don't. The drop out rate in Bermuda for CSTP is currently running at about 15 percent.

Parents who are unsure whether their offspring may make the grade are probably better off in other forms of investment, such as Student Endowment policies offered by local life assurance companies which offer return of capital plus dividends regardless of whether child goes on to college.

Judy Panchaud, vice president of BF&M Life, said: "If you're sure that your child will attend university then you're probably better off with a scholarship trust. If you're not certain, then another form of investment may be more appropriate. We have suitable programmes here at BF&M.'' Although both CSTP and HISTF are similar in most respects, including the fact that virtually all policies are sold with life and disability insurance, there are important differences: * CSTP is run in Canadian dollars; HISTF is a US dollar fund.

* CSTP does not give parents back their fees at the end of a programme; HISTF does.

* If it is obvious a child will not go on to higher education, CSTP allows parents the option to transfer the policy to another child of the same age or younger up to their child's 13th birthday, while HISTF allows the transfer up to their child's 17th birthday.

Winston J. R. Jones became HISTF's enrolment director in the late 1980s after promoting CSTP for several years.

"One of the major reasons was that virtually every member of the public I came across told me they would prefer to invest in a US dollar scholarship programme,'' says Jones.

"Last year Heritage paid the largest scholarship in history, worth US$2,252 per unit per year. This was 40 percent more than CSTP paid a person making the same size of deposits.'' HISTF claims to have given contributors a 13 percent return on their investment last year, compared with CSTP's claim of 8.8 percent.

Reg Minors, who runs CSTP in Bermuda, plays down the differences between investing in Canadian and US dollars. "It is possible to lose on the exchange rate, but it is equally possible to gain on it,'' he says. "At the end of the day, it all evens itself out.'' He says the CSTP programme is the better deal for contributors whosechildren go on to post-secondary education. Minors points out that more people are able to transfer policies under the HISTF scheme.

"This works to the detriment of those who complete the programme because more money is taken from the pool,'' he says.

"If someone drops out of the scheme, then the other people left in it benefit by sharing the interest. If a policy is transferred then other members do not benefit.'' Jones says the fact that both organisations are non-profit is an important consideration.

"These programmes are set up to give the maximum back to children,'' he says.

"Our interest is not in making money but in educating children. That's something my sales people have to come to grips with before they ever go into a home.'' 20 A comprehensive list of scholarships available to Bermudian students can be found in a 72-page Scholarship Directory, published annually by the Bank of Butterfield and available free from Bank branches.

David Marchant is a business reporter with The Royal Gazette. This is his first article for RG Magazine.

SEPTEMBER 1993 RG MAGAZINE