As university terms restart, figures suggest many parents are underestimating the size of student debt, by almost £20,000 in some cases.
This could have a huge impact on the amount you save for your child and their level of financial stability as they head into higher education.
You might have considered paying your child’s tuition fees up front, but this can be costly and might not always be the best choice.
Keep reading to find out the true cost of putting your child through university, the best ways to save the money they’ll need, and why paying tuition fees outright might not be the best option for you and your child.
Covering the cost of a university education
Savings and investment products such as Junior ISAs (JISAs) allow you to begin saving for your child’s future the moment they are born.
You might be thinking far ahead or only into the near future, contributing to a pension on your child’s behalf or building an investment fund to help them onto the property ladder or, maybe, through higher education.
Recent figures suggest that the average value of a JISA at age 17 is just over £19,000, but university debt is likely to be higher.
The Association of Investment Companies (AIC) confirms that parents estimate their child’s university debt at graduation to be around £25,000.
While there is a cap on the cost of tuition fees in the UK, which means an undergraduate course will cost a maximum of £9,250 a year, this still amounts to a potential debt – for student fees alone – of nearly £28,000 after a three-year course.
Official figures from the House of Commons found that borrowers across all courses, who finished their studies last year, did so with an average debt of £45,000.
Failing to factor in the true price of fees, as well as the additional costs of accommodation and daily living expenses could leave your child struggling financially.
Times Higher Education confirmed last year that the average student rent in 2020 came to £126 a week, or £457 a month, outside of London. This rose to £182 a week, or £640 a month, in the capital. Based on a 39-week contract, the average annual cost is £4,914. This works out to just over £14,700 for a three-year course.
Paying tuition fees outright isn’t always the best plan
With tuition fees paid outright – and with help towards rent – a £19,000 JISA investment could allow your child to be financially stable while they study. But taking out a loan to cover course fees might be a better option in the long term.
Heading into graduate employment encumbered by tens of thousands of pounds of debt might not seem like a financially sound idea but taking a student loan could be the right choice in some cases.
A student loan has low interest and repayments only start once your child earns over a threshold amount – £27,295 for those starting university in 2021. Even then, repayments are only based on a percentage of the earnings that exceed this threshold.
Any debt remaining after 30 years is wiped clean.
Leaving a Stocks and Shares JISA invested – and allowing it to convert to an adult ISA – could see it provide significant returns in the long-term.
How to save for your child’s financial future
1. Start early
Investing is a long-term prospect so whether you’re saving for your child’s retirement, first house, or higher education, starting as soon as your child is born gives you the best chance to see your fund grow.
Not only will you have the time to make more contributions, but you’ll also take advantage of compound growth and potentially see greater stock market returns.
2. Consider investments over savings
Savers have had a difficult time since the global financial crisis over a decade ago.
With interest rates currently at historic lows and inflation on the rise, money held in cash is unlikely to keep pace with inflation. The money you put aside will effectively be losing value in real terms.
A Stocks and Shares JISA or a fixed-rate bond have a much better chance of beating inflation.
3. Speak to us
Building wealth to give your children a good start in life and financial stability as they get older may be a part of your long-term financial plan, but there are different ways of going about it.
For some, paying a child’s tuition fees outright might be the best option. For others, tackling high-interest debt first or keeping the money invested for a milestone later in life – such as a first home – might make more sense.
Professional financial advice can allow you to look at your finances as a whole and work out the best option for you and your child, but always in a way that aligns with your long-term financial plans.
Get in touch
Please contact us to find out how our Chartered Financial Planners can work with you to provide your children with the financial stability to help them succeed in higher education and beyond.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
