The pride of seeing your child on their graduation is something that you never forget.
Unfortunately, in many cases, their lasting memento of the day could be a substantial student debt.
With annual fees now reaching £9,535, along with the costs of books, accommodation, food, and transportation, the total expense of attending university for three years could be over £68,000.
It's a significant financial burden that they will be attempting to pay off for years, making it more challenging to move forward with other life milestones such as buying a first home, starting a family, or perhaps setting up a business.
You might consider paying it off for them, but this would likely require a substantial portion of your own savings, especially at a time when you're planning for your own retirement.
But there could be a solution.
The tax-efficient way to build a college fund
If you could build a college fund before University time comes round, paying for those three years could be a great deal easier, for your child and for you.
It may require some forward planning, and it will certainly need some sacrifice of your spare cash, but there is a way to save the kind of money you would need and do it all tax efficiently.
Setting aside money each month using a Junior ISA might grow the college fund your child would need for university or have a better chance of getting on the property ladder.
Junior ISAs (or JISAs) were introduced in 2011 to replace child trust funds. Like other ISAs, they allow tax efficient saving or investment, and also like other ISAs, the fact that the taxman can’t take a share means the money can potentially grow faster.
Where they differ from other ISAs is that they’re only available for children under 18. They have their own ISA allowance which lets you currently pay in up to £9,000 a year, but the money belongs to the child. The child can take over the account when they turn 16, but the money can’t be withdrawn until they turn 18, as they’re designed to be long-term savings accounts.
This means that as long as you start early enough, perhaps even before your would-be student is still in primary school you could build up the cash sum they would need.
Assuming growth of around 6% - which may be possible with a Stocks and Shares JISA- Saving £80 a month into a JISA from birth until a child turns 18 could potentially generate more than £30,000 – enough to pay for three years of tuition fees (based on current fees). Double the monthly saving and you could potentially cover the average living costs as well as fees.
If you could put away the full JISA contribution allowance of £9,000 each year you might be able to hand your child a very useful £300,000 on their 18th birthday, enough for university and maybe for the deposit on a first home.
If further education is not for them, they could simply transfer the money into an adult ISA, setting them up for their future.
A choice of JISA
There are two types of JISA to consider. Cash JISAs can provide security, with guaranteed interest at a set rate. Stocks and Shares JISAs are investments. There are no guarantees, but there is the potential for greater returns, particularly over the long term- although it can also go down if your investments don’t perform.
You’ll also have to think about your spread of investments if you choose a Stocks and Shares JISA. A spread from various sectors in more than one stock market may be a smart way of spreading the risk.
You can choose either Cash or Stocks and Shares, or both, but you will still be limited to a total of £9,000 contribution each year.
Making the most suitable choice for your child
A Cash JISA that is less risky, or a Stocks and Shares JISA to generate better returns. And if you opt for Stocks and Shares JISA, which stocks and shares should you put in it?
For help with these choices, and with finding the appropriate JISA provider it can help to have an expert on your side. With a new tax year and a new Junior ISA allowance to use, it might be time to call us at Continuum, today.
University tuition fees and financial support in England
Student living costs in the UK 2025 - Save the Student
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 and returns of an investment are not guaranteed, investors may lose some or all of their investment. When investing Capital is at risk.
Stocks and Shares ISAs do not include the same security of capital which is afforded with a deposit account.
Investors in ISA’s do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
The Financial Conduct Authority does not regulate deposit accounts, taxation advice or school fees planning.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. We recommend that the investor seeks professional advice on personal taxation matters.
