In the last academic year, there were 2.3 million students in higher education at more than 140 UK universities. With a further 275,000 young people applying for places this term, around 3% of the population are currently studying at a higher level.
If you have children or grandchildren, it’s quite possible that they will be heading off to university for the first time this autumn. One of the main concerns that parents and grandparents have when their child decides to embark on a degree course is ‘how am I going to pay for their studies?’
According to the Institute of Fiscal Studies, the average student in England will graduate with debts of over £50,000, while those from poorer backgrounds will incur more.
With tens of thousands of young people heading off to university in the next few weeks, we’ve put together this essential guide to university costs and fees, including how much it costs to study and the various methods available to fund a degree.
What does going to University cost?
Since tuition fees were tripled in 2012, universities in England, Northern Ireland and Scotland can charge up to £9,250 per year. Welsh universities can charge up to £9,000.
So, for a three-year course, the fees alone can total £27,750.
Additionally, a university student will face a range of living costs. According to a December 2018 study by consumer organisation Which? the average costs when living away from home at university are:
- Rent – while this varies by region and landlord, Which? estimate that renting in London in private accommodation can average £533 to £770 a month, whereas in Leeds it can be £281 to £353 and in Liverpool £259 to £385
- Transport – £83
- Groceries – £67
- Utilities – £45
- Interests and hobbies – £36
- Clothing – £42
- Holidays and flights – £70
- Bank charges and fees – £17
- Takeaways and snacks – £24
- Phone and internet – £26
- Alcohol and cigarettes – £16
- Personal care – £10
- Coffee and tea – £20
- Other expenses – £20
In total, this means that living expenses can total around £800 to £900 per month. Over a 3-year course, based on being away for 8 months a year and adding in the course fees, that comes to more than £46,000.
Methods of funding a University course
If there is a new arrival in your family, one way to fund their higher education is to save up from the moment that they are born.
If you want to save up £30,000 by the time your child or grandchild has finished their A-levels, you will need to save £122 per month assuming a 1.5% interest rate.
However, if you take inflation into account (over the last 18 years the price of goods and services increased by an average 2.9% a year) then you’ll need to save in the region of £50,400 – around £204 per month over an 18-year period.
Of course, you may prefer to invest money for your child or grandchild’s university education, rather than saving it into an interest-bearing savings account.
If you use the £122 per month savings above and apply a medium growth rate of 5% a year over 20 years, you would end up with a figure of £43,206 (assuming 1.25% charges and that you use your tax-free ISA allowances).
If you invested the increased amount of £204, using the assumptions above, you would yield £72,247 after charges.
Of course, this depends on a range of factors such as your attitude to risk, whether you’re using your ISA allowances, and the performance of your investments over 18 to 20 years.
Borrow against a property
If you own your own home, then you may be able to release capital to provide funds for your child or grandchild to use.
Grandparents over the age of 55 may be in a position to use Equity Release or a Lifetime Mortgage, depending on the equity in their home. Releasing inheritance money now can also have later life planning and Inheritance Tax advantages.
As a parent, you may be able to remortgage your home to raise funds to pay for university fees or living costs. Again, this will depend on the equity in your home and you being able to demonstrate affordability.
Use student loans
Student loans are split into two types:
- Tuition fee – full-time UK students can receive up to £9,250 each year in their tuition fee loan. This is not means-tested
- Maintenance – these loans are designed to help towards living costs. They are means-tested using household income and the amount available also depends on whether the student is studying in London
Students begin to repay these loans once they start earning above a threshold income. From 6 April 2019 this amount is:
- £25,725 in England and Wales
- £18,935 in Scotland or Northern Ireland
Above the threshold, an individual must pay 9% of their income. This can include employed, self-employed, or rental income, and can also include savings interest, pensions or investment income if this exceeds £2,000.
Any outstanding debt that a student owes after 30 years is written off, even if they haven’t paid anything back during that time; for example, if they weren’t working or were earning below the repayment threshold.
Bursaries, scholarships or ‘fee waivers’
As well as tuition fees and maintenance loans, universities and colleges also offer financial assistance. Also, some private charities and trusts may also be able to help.
- One-off bursaries to help with living costs, primarily targeted at students from lower-income families
- Scholarships that cover tuition fees in full. These are often aimed at students with great potential, either academically or an area related to what they are studying (e.g. music or sport)
- One-off payments from a charity or trust.
…and don’t forget to protect yourself
Even if you have planned carefully to send your child or grandchild to university, this could all be for nothing if the worst were to happen.
If you were to die prematurely, or become critically ill, your child or grandchild’s future could be put at risk. So, it may pay to ensure that there can be an injection of capital to meet the costs of higher education if something were to happen to you.
Ensuring you have sufficient protection in place; for example, a lump sum to cover a child’s three years at university should be part of your overall financial plan.
The advantages of helping your child or grandchild with University costs
Considering that there are tuition fee and maintenance loans available, a child can get through university with little or no financial help from family.
However, this will leave them with debts approaching £50,000 when they finish their degree. They could be paying off debts for years to come, at the time where they may want to be saving up to buy a home or to start a family.
Writing in FT Adviser, John Somerville recounts a story about a graduate who did not take two promotions in their workplace because it would have taken them above the threshold where they would need to start repaying their student loan.
The ideal situation for most parents and grandparents is to provide the funding to allow their child to get the best education they can, and to give them the best start in life.
If you would benefit from advice as to how you can help fund your child or grandchild’s education, please get in touch. Email email@example.com or call us on 01189 876655.