The university cost conundrum, and how parents can help
Parents of 18-year-olds across the UK are preparing for their children to fly the nest to university this month. But with household bills rising, helping their children to afford to live as students is an expensive business.
While student children can apply for loans to cover university living costs as well as tuition fees, these loans are means-tested on parental income, meaning that parents are expected to bridge the gap between the loan and the real cost of student life.
Recent studies show that, on average, parents contribute over £120 a month to supplement student loans1, a figure that is expected to rise as living costs increase. This masks much higher contributions in some expensive areas such as London, while parents who do not want their children to graduate with debt may pay much more to support them.
In addition to this, parents often need to give their children support with managing their money, whether this involves helping them to apply for student loans or budgeting alone for the first time.
Whether your children are about to leave home now, or whether you have some time to wait, here are some tips to help your offspring, and you, get off to a new start on a firm financial footing.
1. Start early if you can
For those whose children are not yet of university age, there is time to prepare. Putting aside money now to help student children will ensure that you are not scrabbling around when the time comes.
One way to give your child a spending pot at 18 is to use a Junior Isa, or JISA, which allows money you put away for your child to accumulate tax free. Once the child is 18, the money becomes an adult ISA for them to use, and you can put £9,000 a year into the pot.
If your child has a long way to go before university age, investment could help this nest egg to grow. However, if your child will need the money soon this may be a risky strategy and you may be better sticking with cash savings.
The one thing to bear in mind with a Junior ISA is that your child has direct control over all of the money as soon as they reach the age of 18, so you might want to consider whether you trust them to handle this responsibility and use the money for their student expenditure. If not, you could save or invest the money in your own name using your £20,000 ISA allowance, and hand it over in a more structured fashion when needed.
2. Get to grips with student finance rules and rates
Student finance is complex, and the calculations around who pays what back when are about to change.
If your son or daughter heads off this year, make sure your child has applied for the loans available to them, and understand what is involved in paying them back. The guides at https://www.savethestudent.org/ are very user friendly.
Repayments of student loans vary according to salary, but the amount you owe can keep growing due to interest being added on while you are not paying off student debt. Many loans are written off after 30 years because they have not been paid off, but the amount your child will pay depends on their salary trajectory over time.
The calculations on when a loan is written off change for 2023 graduates, when the starting salary for repaying loans, the rates at which they accrue interest and the write-off period all change, so make sure you understand the calculations that will affect your son or daughter.2
Even if you can pay for your child’s tuition fees and student loan upfront, this may not be the best strategy unless you are sure they will start off with a high salary and continue to pay back the loan in full over time. You may be best allowing them to use the loans and saving to help your children in other ways, such as with a house deposit.
3. Talk to your student about money
Managing your own finances for the first time can be daunting, especially with bills rising at present. However, helping your student offspring to understand how to manage money will pay dividends.
A student bank account is a good place to start, and there are several to choose from, with some offering perks such as cash and Young Person’s Railcards. However, ensure that your child is not blinded by benefits, and instead considers the size of the interest-free overdraft offered by each bank as this may be very necessary as they learn to budget as a student.
The Moneyfacts website (https://moneyfacts.co.uk/current-accounts/student-bank-accounts/) can help you to look at what is available here.
Students can also apply for credit cards, but if your son or daughter does this, ensure that they understand how quickly debt on these cards can grow when interest rates are high. The Bank of England is expected to raise bank rate in coming months, making these cards even more expensive.
4. Check for further entitlements
Whether it is a bursary, scholarship or grant, many students are eligible for funding they do not even know about. The Turn2Us website (https://www.turn2us.org.uk) can help students to find grants to help with the cost of living, while it is also worth checking on Save the Student (https://www.savethestudent.org/student-finance/student-bursary-scholarship-sources.html) for other sources of funding
5. Check the following links
If you still need more help on student finance, the following websites may be worth a read.
16th September 2022
https://studentfinance.campaign.gov.uk – the government’s site on student finance
https://www.ucas.com – the site for university admissions
https://www.savethestudent.org – student money help
https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/ - help from MoneySavingExpert’s Martin Lewis.