Large student grants used to make heading off to university or college affordable. But the generous grants have been replaced by loans.
These are vital, because tuition fees, maintenance and interest payments soon add up. With headlines shouting about students graduating with substantial debts many students – not to mention parents and grandparents are scared by this huge sum – and worry about how they’ll ever repay it.
However, things might not be as difficult as they first appear, and at Continuum we are looking at how you may be able to help.
They don’t need cash upfront
Students don’t need cash upfront to go to university. Once an application has been processed, tuition fees are automatically paid by the Student Loans Company. They can provide a loan towards living costs too – but not every student will be entitled to this type of support.
Over three years the costs mount up. Borrowing £9,250 for fees and a similar sum for food, rent and subsistence will mean a total of around £55,000 is very possible with a three-year degree course.
Full-time students start repaying from the April after they graduate or leave. Those who don’t gain too much financially from going to university will repay little or possibly nothing and with the money taken automatically from their income, most don’t really miss it.
Repayments are fixed at 9% of everything earned above £27,295. So, graduates only repay when they are earning above £2,274 a month or £27,295 a year. Scottish students have a lower threshold where repayments start at £19,895 a year.
So for example, a graduate earning a salary of £35,000, will be £7,705 above the threshold, and will repay 9% of that, or £693.45 a year.
Repayments stop either when they have cleared the debt, or after 30 years have passed.
Interest on student loans was originally tied to inflation, which made loans effectively interest free. That changed and interest is currently charged at inflation plus 3%. With inflation itself currently running at 3%, repayment interest may become more costly in future.
But they will need some help
But even if student loans may not be quite the millstone they are sometimes seen as, they are not the end of the story. Not every student will get them, which means families will probably need to contribute to their children’s living costs while at university.
Maintenance grants may still be available for some students in Wales, Northern Ireland and Scotland, but these are likely to be phased out altogether and replaced with maintenance loans.
Full-time students can take a loan to pay for their living costs, which include food, books, accommodation and travel. They are known as maintenance loans and even if there is a full maintenance grant, the amount of money to live off may barely cover accommodation fees in some areas. What’s more, the maintenance loan is means-tested based on household income.
The higher the income, the lower the loan. The amount available starts reducing with family income of just £25,000 a year.
As a parent you may be expected to pick up the slack, which can seriously impact your own finances, especially if you have more than one child at university.
For that reason, parents might need to start planning early to manage the extra costs.
A family is a major responsibility. Whatever the age of your children, we may be able to work with you to find ways to deal with those responsibilities. Contact us today.
Building up a college fund
Building up a college fund might be a sound idea. The earlier you start, the easier it will be to save the kind of money needed.
Choosing the best way to build up the cash sum you want will make it easier still.
There are several solutions. You might consider a trust fund. In the past a straightforward saving account might have been worth considering, but these days low interest rates might make it rather unrewarding. To beat inflation, a Junior Stocks and Shares ISA might be the simplest and most potentially rewarding answer.
These can be opened for a child of any age under 18 and parents (and grandparents) can contribute up to £9000 a year. Parents or guardians with parental responsibility can open a Junior ISA 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.
It makes sense to get professional help with selecting any ISA. A call to us at Continuum could help decide if a Junior ISA may be appropriate for your circumstances – and could help find the most suitable Junior ISA from the dozens available.
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.
The Financial Conduct Authority does not regulate university/school fees planning