How to plan ahead for student finance

Families still recovering from the stress of A-Level results, sadly, have another horror ahead – student finance.

Assuming the costs remain the same, an English student, or a student from Wales or Scotland studying in England will spend an estimated £66,500 over three years studying. And while tuition fees will vary elsewhere in the UK, depending on where they study, maintenance costs are eye-watering.

This isn’t personal advice. All investments can rise and fall in value, so you could get back less than you invest. If you’re not sure what’s right for you or your child, ask for financial advice.

What has changed with student finance?

The maths around student loans changed dramatically last year. The threshold income for making repayments was cut for new students to £25,000, and the length of time before outstanding debt is written off is now 40 years, not 30.

Unless the rules are changed, this will massively increase the number of graduates paying debts off in full. So, we’re moving from a world where most people won’t repay the full debt, to a world where around three quarters will. This is on top of the credit cards and overdrafts that mean an awful lot of graduates are emerging from university carrying a deadweight of debt.

In theory, this will pay off in the long run. ONS data released in June showed the average graduate earns £6,500 a year more than a non-graduate during their career. In today’s prices, over a 45-year career, this could add up to as much as £292,500.

The latest edition of the HL Savings & Resilience Barometer found those with degrees were more likely to have enough savings and cash left at the end of the month, to own their own home and be on track for retirement, than those without.

Not that this makes the financial squeeze any easier right now.

Tuition fees, and part of maintenance costs, this can be covered by loans, so the graduates can deal with the cost later. However, maintenance loans don’t come close to covering all living costs, and to make matters worse, these loans have fallen way behind inflation over the last few years, meaning families might need to pay more. So, even with loans, and students work alongside their studies, parents will still need to step in and cover the difference some parents will actually want to pay maintenance costs in full up front, especially since most graduates will end up repaying any maintenance loans in full.

How can you prepare for student finance

Anyone thinking there’s a chance their child might go to university in the future, should consider the finances as early as possible.

One popular option for any savings or investments for children is the Junior ISA (JISA). You can put aside up to £9,000 a year until the child can access it at 18. It will grow free of UK income and capital gains tax. By tying this money up, it can’t be accessed earlier in their childhood, and it will still be there when they get to university age.

The earlier you start saving or investing, the better. If this seems like a stretch at expensive times in childhood – like in the early years – anyone can add money to a JISA, like grandparents or loved ones. And you don’t have to start with huge sums of cash. You can put in just £25 a month and get on the right track without breaking the bank.

You can choose to save this money or invest, but investing is usually more sensible for the long term. 18 years is usually plenty of time to ride out the short-term volatility of the stock market and take advantage of long term growth.

Whatever path your children take, having a nest egg to start adult life is always going to be a useful head start. Of course, when it comes to children and investing, there aren’t guarantees and you could get back less than you invest, and your child might decide that university isn’t for them. ISA and tax rules can change and benefits depend on personal circumstances.