Help with university costs: a parents’ guide to saving
Helping children with their living costs at university is an unexpected surprise to many parents of students at the start of each term.
The government has made recent changes to student loan repayments. Graduates will start repaying loans when they earn less, and tuition fee loans will be cancelled later. Because of this, some families are keener on helping to pay university tuition fees for their prospective students as well.
Helping your children to afford university is not cheap. According to student finance website Save the Student, the average parent pays out £227 a month for each student child.1 Many pay more, especially if children are living in an expensive area, or if parents don’t want to leave them with large student debt burdens.
Those with younger children have an advantage in terms of university fees, though. They can start planning now for this expense. Useful tools such as tax-efficient savings schemes and the power of compound interest over time can help you to build a nest egg.
Here's how to get started.
Understand the costs and rules
The student finance system may change significantly when your child is ready to leave home if you have young children. This means that the rules and regulations regarding financial support for students may be different in the future.
It’s important to stay informed about any updates or changes to the system. This will help you and your child plan and prepare for their higher education expenses. However, it’s unlikely that sending a child to university is likely to be fee-free in future, so understanding the rules now and planning accordingly will pay off.
If you're a parent of a potential student, you should think about two expenses. These are tuition and the cost of your child's living expenses. Living expenses include accommodation, food, and clothing, which are also known as maintenance costs.
Tuition fees vary depending on whether you live in England, Wales, Northern Ireland, or Scotland. At present, English students going to university anywhere in the UK pay tuition fees of up to £9,250 per academic year. This means that most students end up with debts of almost £28,000 on graduating. This is before they've even paid for any living costs.
For Scottish students studying at a Scottish university, fees will be paid, but not if they choose to study in England. Welsh fees are capped at £9,000, but Welsh students studying outside Wales can pay more. Northern Irish students will pay under £5,000 a year if they study at Northern Irish universities, but more if they go elsewhere.
As well as paying for tuition, though, most students take out maintenance loans to pay for rent, food, and other expenses. These loans depend on the parents' income of the starting student. If you earn more, you should expect to contribute more towards help with living costs while they're studying.
As a guide, your student child will only receive a full maintenance loan if your total family income is below £50,778. Above this you will lose £1 of the loan for every £4.01 of the total income over £50,778, until your child can borrow 72% of the full maintenance loan.2
Even if you're okay with your child taking loans, you'll likely have to help pay for their university expenses each term. So, it's smart to plan ahead.
Take time to do the calculations
It can be difficult to calculate whether it’s worth paying for your children’s university education up front, or whether to simply save for your parental contribution and let them take out loans for the rest.
New student loan rules mean more people will have to repay their loans instead of having them forgiven. Loans will be repaid once you earn more than £25,000 and students will repay them for 40 years, instead of 30.
Interest begins to accrue on the loans from the minute the student is paid the money, and this is linked to inflation.
Your calculation over whether you help with the loan payments will depend on the following:
- Whether you think your child will earn enough to pay back the loans over time
- Whether you can afford to help them with university costs if you start early enough
- Whether you feel it’s more important to help with university costs or with other financial outlay, such as a house deposit, if you think you would need to choose which to fund.
A financial adviser will be able to help you with your options.
Choose the right vehicle for your savings
Whether you are saving for a top-up for maintenance loans or for the whole of your child’s university costs, putting your money in the right place will help it to grow effectively.
An ISA, so that you do not pay tax on the money, is a good choice of account if you are not using your £20,000 a year allowance for something else.
If you have a long time to make the contributions before they are needed, investing, rather than saving, could help your nest egg to grow more quickly. Over long time periods, investment often outperforms saving, however your money can go up as well as down in value.
Deciding on the right products for you can be tricky. Our financial advisers can offer their expertise to support you in making the best choice for you.
It’s tempting to set up a plan to pay for university fees and then think that you can ignore it as your child grows. However, checking it regularly to ensure you’re on track to meet your goals is sensible.
If you’re investing the money, you may wish to move to less risky investments as you approach your child’s university days, or you may wish to top up your savings if they’re falling short of your goal.
Keep it flexible
Plans change. If your child is young and you do not know their aptitudes and passions, there is no guarantee that they’ll want to go for a university degree. Increasing numbers of students now opt for degree apprenticeships, where fees are paid, or they may opt for a degree studied from home to save money.
If so, keeping the money in an account such as an ISA will ensure you can withdraw it for other expenses. Your child may be grateful for a house deposit, money for driving lessons, or to get started with a pension.
Having a nest egg available ensures you are prepared for any eventuality and can set your child off on the best foot, no matter their plans.
Monday 23 October 2023