Saving for Higher Education

Israeli University Costs: A Pleasant Surprise

If you are coming from the US or UK, Israeli university tuition will feel remarkably affordable. Annual tuition at Israeli universities is regulated by the Council for Higher Education and set at approximately NIS 10,000-13,000 per year (about $2,800-$3,600) for undergraduate programs. This applies to all eight research universities (Hebrew University, Tel Aviv University, Technion, Ben-Gurion University, Bar-Ilan, Haifa, Weizmann, and the Open University) and most academic colleges.

The tuition is the same regardless of the program: engineering, medicine, law, and humanities all cost the same. There is no concept of "out-of-state" tuition, and international students (including new olim) pay the same rate as domestic students.

However, tuition is only part of the cost. Total annual expenses including living costs, textbooks, and fees typically range from NIS 50,000-80,000/year (NIS 4,000-7,000/month), depending on whether the student lives at home or independently.

The Army Service Factor

Most Israeli students begin university at age 21-23 after completing military service, not at 18 like in most Western countries. This has significant financial implications:

Pikadon (Discharge Grant): Soldiers who complete their service receive a discharge deposit (Pikadon Hashri'on) that can be used for education, starting a business, or purchasing an apartment. As of 2025, the amount varies by service type and length but ranges from approximately NIS 20,000-30,000. This can cover two to three years of tuition.
Tuition discounts: Veterans of combat units and certain service tracks receive additional tuition discounts of 10-50% at some institutions.
Maturity and focus: Students who enter university after army service tend to be more focused and motivated, often completing degrees more efficiently.

For olim whose children will serve in the IDF, the combination of Pikadon and Gemel Yeladim savings can potentially cover the entire tuition cost without any additional family savings.

Keren Hishtalmut as an Education Fund

The קרן השתלמות (Keren Hishtalmut) (Study Fund) is one of Israel's most tax-advantaged savings vehicles. While originally designed for professional development, it has evolved into a general-purpose savings tool that many families use to build an education fund for their children.

How it works for education savings:

6-year lockup: Money deposited in a Keren Hishtalmut is locked for 6 years. After that, it can be withdrawn tax-free for any purpose, including your child's education.
Tax-free growth: Investment returns within the fund are completely tax-free (up to the statutory contribution ceiling), making it one of the most efficient savings vehicles in Israel.
Employer contributions: If you are an employee, your employer contributes 7.5% of your salary (up to a ceiling) and you contribute 2.5%. The employer's contribution is not taxed as income, making it effectively free money.
Self-employed option: Self-employed individuals can contribute up to a lower ceiling but still benefit from the tax-free growth.

Strategy: If your child is 10-12 years old, opening a Keren Hishtalmut now means it matures by the time they start university. The tax-free growth over 6+ years, combined with employer matching, makes it one of the best ways to save for education in Israel.

Gemel Yeladim: The Built-In Head Start

Your child's גמל ילדים (Gemel Yeladim) account matures at age 18, just in time for post-army education. If you activated the matching program from birth, the balance could reach NIS 75,000-80,000, enough to cover most or all of a Bachelor's degree tuition.

For children who made aliyah at a later age, the Gemel Yeladim balance will be smaller due to fewer contribution years. In this case, supplementing with other savings vehicles becomes more important.

Other Savings Vehicles for Education

Kupat Gemel L'Hashkaa (Investment Provident Fund): A flexible investment fund with no lockup period. You can invest monthly amounts and withdraw when needed. Returns are taxed at 25% capital gains, but the flexibility may be worth it for education savings with an uncertain timeline.
Bank פיקדון (Pikadon): For short-term savings (1-3 years before university), a fixed-term bank deposit offers guaranteed returns with no market risk. Interest is taxed at 15%.
Index funds / ETFs through a brokerage: For longer horizons (5+ years), investing in broad market index funds historically provides the best returns, though with market risk. Capital gains are taxed at 25%.

The contrast with US higher education costs is dramatic. Average annual tuition at a US public university is $10,000-$15,000 (in-state) or $25,000-$45,000 (out-of-state). Private universities charge $40,000-$60,000+/year. Israeli tuition of NIS 10,000-13,000 ($2,800-$3,600) is a fraction of these costs. The US 529 plan model of saving $100,000+ for college is simply not necessary in Israel. If you have 529 accounts for your children in the US, consult a tax advisor about the best way to handle them after aliyah, as PFIC rules may apply to the underlying investments.

Studying Abroad vs. Israel

Some olim families consider sending their children abroad for university, either to their home country or to a third country. The financial comparison is stark:

Israeli university total cost (3-year BA): NIS 30,000-40,000 tuition + NIS 150,000-240,000 living costs = NIS 180,000-280,000 total (if living independently)
US university total cost (4-year BA): NIS 350,000-900,000+ depending on institution
UK university total cost (3-year BA): NIS 300,000-500,000 including living costs

Israeli degrees from top universities (Hebrew University, Tel Aviv University, Technion) are internationally recognized. Unless your child has a specific academic or career reason to study abroad, the financial case for Israeli higher education is overwhelming.

A Savings Timeline

Here is a practical timeline for education savings:

Birth to age 5: Activate Gemel Yeladim matching. Choose a stock-heavy investment track. This costs you only NIS 50/month from the child allowance.
Ages 6-12: If you have the financial capacity, supplement Gemel Yeladim with monthly contributions to a Kupat Gemel L'Hashkaa or index fund. Even NIS 300-500/ month adds up significantly over 6-12 years.
Ages 13-15: Open a Keren Hishtalmut if you have not already (through employment or self-employment). The 6-year lockup means it matures around age 21, perfectly timed for university.
Ages 16-17: Consider shifting Gemel Yeladim to a more conservative track as the withdrawal date approaches.
Age 18: Gemel Yeladim matures. Army service begins for most. Pikadon starts accumulating.
Ages 21-23: University begins. Pikadon, Gemel Yeladim, and Keren Hishtalmut funds cover tuition.