An education is an investment in the future – but like all investments, the finances need careful planning. Both you as a parent and the student themselves need to understand the financial impact.
A university degree course can be a substantial cost. If you have several children with an academic bent, it can look impossible to provide the kind of support they will need.
At Continuum we are looking at how investment in education can be more affordable than it first appears.
What are the costs?
What are the real costs you need to deal with?
Almost all university courses are charged at the maximum £9,250 per year, which sounds bad enough, but fees for international students can start at £10,000 and peak at over £38,000. For medical degrees, these tuitions are higher still.
Many students graduate with a debt of at least £27,750 for tuition alone and living costs, which include things like books as well as food and a roof over their heads can easily double that figure.
Fortunately, students don’t need to pay upfront. Tuition fees are automatically paid by the Student Loans Company and they can provide a loan towards living costs. But living costs loans are means tested, which means that not every student will be entitled to this type of support.
Naturally, the loan will need to be repaid. But student loans are not like other loans.
Student loans are repaid as a deduction from income, for up to 30 years (after which the debt is written off). Repayments are calculated as 9% of earnings above £27,295. Scottish students have a lower threshold where repayments start at £25,000 a year. A graduate earning £35,000 a year will be £7,705 above the threshold, and will repay 9% of that, or £693.45 a year.
Student debt and the housing ladder
At Continuum we can help find solutions that will make student debt easier to manage – especially when it comes to buying a first home, contact us for a free no-obligation initial consultation.
But a student loan will not cover all the costs
But even though student loans are not the problem they first appear, they cannot cover all the costs. The maintenance side of student loans are means tested and the higher the parental income the lower the loan. Helping several students through further education will seriously impact your own finances.
For that reason, parents might need to start planning early to manage the extra costs. You might even want to start to invest when your child is born, giving you at least 18 years to build up a substantial sum.
There are several solutions
Low interest rates make straightforward saving unrewarding, while inflation can reduce the value of the cash you do put away.
Opening a Junior Stocks and Shares ISA might be a better solution and mean that the taxman will not be taking a slice of the college fund. They 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.
You might also consider an endowment policy, or if your finances are sufficiently complicated, a family trust fund.
Investing in education – and your pension
Many of us are having children later in life, which means the cost of further education comes at a time when your priority may be your retirement.
It pays to look at all the solutions which will let you invest in your children’s future. At Continuum we can look with you. Not only can we help you decide which is best for you, we can 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, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate school fee planning and trusts.