University tuition fees in England will rise to a maximum of £9,535 a year next year – up £285, while maintenance loans will also rise by £414 a year.
You don’t need a maths degree to know that going to university is an expensive business, and debts are going to get even bigger after these changes.
If your offspring might go to university, you’ll need to start planning as soon as possible.
This isn’t personal advice. Tax, ISA and pension rules can change, and their benefits depend on your and the child’s circumstances. If you’re not sure what’s right for you or a child, ask for financial advice.
What you need to know about repaying university costs
Tuition fees and loans depend on where someone lives and where they study.
The amount, interest rate and rules also differ, but one thing they share is the way you repay. You don’t pay the interest each month, you pay a fixed amount depending on your income.
Overall, it works like an extra tax – usually of 9% over a threshold. As a result, bigger debts won’t make a difference to the monthly sums graduates pay. However, it will mean more people carrying more debts for longer, so they have to repay more overall.
One key difference geographically, is that they’re written off after different periods of time.
It’s 25 years in Northern Ireland, 40 years for students in England who started since September 2023, and 30 years for most others.
For English students in their first and second years, who graduate on middle incomes, it will mean repaying debts for the vast majority of their working life, which will attract an eye-watering amount of interest.
It means that for parents, particularly in England, if they think there’s a chance their children will eventually go to university, it’s worth saving or investing as young as possible.
What can parents do to help with rising university costs?
The earlier you start, the better.
If you’re looking to save and invest for your child’s future, and to help cover the costs of university, one of the best options is through a HL Junior Stocks and Shares ISA (JISA).
A JISA lets you put up to £9,000 a year away for your child, and it’s sheltered from tax. If you’re putting this money aside for up to 18 years, it’s well worth considering the growth potential of investing.
If it’s close to the wire, and you don’t have long to save, you’ll need to talk to the prospective student about their options.
You should also be clear about what they can expect from you, what they need to take in loans, and what they need to earn for themselves – so everyone knows where they stand.
It could also make sense to speak to grandparents or other relatives about whether they can offer any financial support.
The fact that the 2024 Autumn Budget revealed plans to bring pensions into the estate for inheritance tax might give them even more incentive to help.
They can give away up to £3,000 a year within their annual gifting allowance. If they make regular payments from their surplus income (without eating into their savings), they can give regular sums of any size, and it will be counted as being out of their estate immediately for inheritance tax purposes.
If the child is younger, they can also pay directly into a JISA and build towards their future that way.
Of course, your child might not go on to study. But even if they don’t, no child will ever be disappointed to learn that you’ve put aside a valuable nest egg to help them make a start in adult life.
Remember, all investments can rise and fall in value, so you or your child could get back less than you invest.
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