More than ¾ million young people will be starting further education at the end of the summer. Some will be going to a local college and will stay at home, but many others will be heading off for the first time.
For parents, the freedom of an empty nest will be tempered by concerns about the costs.
Higher education means higher financial commitments, and in most cases, a high contribution from the bank of Mum and Dad.
At Continuum we are looking at what the costs are, and how you can deal with them.
What are the costs?
Universities in England, Northern Ireland and Scotland charge students from England up to £9,250 a year. For accelerated degrees which are completed in less time they can charge up to £11,100. Medical degrees are even more expensive.
But tuition fees are just the beginning. Living costs include rent and bills, food and drink, and travel. There may be course-related payments such as field trips.
Completing a university degree course can actually cost upwards of £50,000. If you have several children with an academic bent, it can look impossible to provide the kind of support they will need.
But help is at hand.
Although the free money of the student grant has long gone, the government still provides support. Students can apply for a loan from Student Finance England to cover university tuition fees.
There are also means-tested maintenance loans to help with living costs, but only those with a low household income of £25,000 or less are likely to get the full financial support. It may also be possible for maintenance loans to be offered to those whose household income is above £25,000.
The difference between the student loan and the actual costs of three or more years of study will have to be found from somewhere.
How the loan works
Naturally, the loan needs to be repaid, and a burden of debt in the tens of thousands does not sound a great way to start a career. But student loans are not like other loans.
Student loans are repaid as a deduction from income, over up to 30 years (after which they are written off) as 9% of earnings above £27,295. However, there are different scenarios where students may be on a different Plan Type for repayment, of which the threshold for repayment differs. There is also the possibility for a Postgraduate Loan plan – of which the threshold is much lower, and the repayment percentage is 6% as opposed to 9%. So a graduate earning £35,000 a year will be £7,705 above the threshold, and will repay 9% or £693.45 a year
Scottish students have a threshold where repayments start at £27,660 a year, for individuals who took out their student loan on or after 1998 – this is Plan Type 4. The repayment percentage for these students is 9%.
But even though the lingering repayments might not be the problem they first appear, most families will need to make a major upfront contribution over several years. And the cost of further education comes at a time when your first priority may be maximising your pension pot for a comfortable retirement.
As is often the case with finances, it pays to plan ahead and build a college fund. Setting aside a regular sum each month by Direct Debit several years before the money is needed – and ideally before the children even reach secondary school – could build the wealth your offspring would need.
But what is the best way to make those regular amounts count?
Set up a savings plan: A savings account is safe and secure, and interest rates are on the up. However, they remain below inflation, meaning the value of the money you put away is falling. Worse, the taxman will be happy to help himself to a share.
You might be better off with an ISA.
ISA: An ISA should be part of most people’s wealth creation plan, allowing you to build savings free of the taxman’s attentions. But there is no need to limit yourself to cash. You can invest with a Stocks and Shares ISA. There will be downs as well as ups, but if you invest over 5 years or more you should hopefully see the stock market generate returns substantially better than you could get with savings.
The downside? There is a limit of £20,000 a year on ISA investments. You might prefer to invest that £20,000 for your own future.
Junior ISA (JISA) could be the solution: A JISA is a tax-efficient savings account that can be opened for a child under 18 and can be based on cash savings or on stocks and shares.
Parents or guardians can open a JISA and manage the account but the money belongs to the child.
They can take control of the account when they’re 16 but cannot withdraw the money until they turn 18 – making it ideal as a college fund.
Best of all – you can save up to £9,000 per year in a JISA, on top of your own ISA allowance. That means you can substantially increase your investments overall, keep much more of your wealth free of tax – and build up the college fund your young students need.
Get some help
It pays to look at all the solutions which will let you invest in your children’s future, and it’s never too early to start. At Continuum we can look with you and help you integrate it into your other financial planning.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Investments do not include the same security of capital which is afforded with a deposit account.
The Financial Conduct Authority does not regulate taxation advice, school fees planning and deposit accounts.