Child going to university? Here is the parent’s guide to student finance
With A-level results now back, hundreds of thousands of families will begin three years or more of financial juggling to ensure that their grown-up children have the best possible start in life.
Despite the perception that the cost of a university education lands on the child – in the form of student debt – the truth is that parents are expected to support their children financially throughout their university course and must budget accordingly.
‘Student loans are calculated based on household income,’ explains Laura Brown, the editor of Save The Student. ‘The more parents earn, the less a student generally receives.’
The website’s most recent survey shows that the average student received £131 a month from parents to top up their loans, while many received far more.
New figures from NatWest reveal that the average student rent has risen by 20% in the past year, meaning that parents will have to chip in even more to help their children make ends meet.
One in four students run out of money every month as it is, says Andy Nicholson, head of NatWest student accounts. ‘Increasing student rents puts even more pressure on finances,’ he says.
While much is written about how students can save money while at university, here’s how parents can prepare themselves for three years of, perhaps unexpected, financial education costs.
Understand the system
It is not easy to understand the student-funding system, or how the expected funding from parents is worked out.
University students need to cover two different types of expenses: tuition fees for attending university and their living costs while they are there.
Parents are expected to contribute to their child’s living costs, but not to their tuition fees, which are designed to be covered by the tuition fee loan that is available to everyone, regardless of parental income.
However, a student’s maintenance loan, to cover living costs, is dependent on parental income. The most a student can receive when studying away from home in London is £12,382, while outside London it is £9,488.
This can drop sharply if parental income is high. For example, a student who is living away from home studying in London will only receive £6,166 in maintenance loans for the year if parental income is £100,000 per year.
If parental income is £50,000 they will receive £8,929 and if £30,000 it is £11,692.
The calculator on the government website will help you to understand how much your child will receive, and therefore what your contribution is likely to be (see gov.uk/student-finance-calculator).
‘Even if you get full funding it often doesn’t cover everything for the average student,’ warns Claire Hattrick, who runs parenting blog Clipboardclaire.com and has recently had twin girls go through the university funding process at the same time.
Work out your likely contribution
Once you know how much your son or daughter could receive as a loan, it is time to look at how far it will stretch. UCAS, the University and Colleges Admissions Service, has a tool on its website to show how expensive it is to go to university up and down the country.
Keying in your child’s hoped-for or confirmed place of study should give you a better idea of what the shortfall from the loan could be, and therefore what you, as a parent, might need to contribute.
Jeremy Walker, director of Cambria Wealth Management, warns that students will be less likely to have a nest egg of their own to deal with costs that exceed the size of their loans, because of Covid.
‘Typically, many students would have spent the summer in part-time jobs saving while living at home,’ he says. ‘However, with many of these casual jobs being in the hospitality industry, the returning classes of September 2021 will have much
less of a buffer to rely on than previous years.’
As a parent, you could encourage your child to look for scholarships or bursaries to help reduce their reliance on you.
Some scholarships and bursaries are for those from a specific part of the country, or for children of those in particular professions so you may be surprised by what is available, especially from small grant-making trusts.
Website The Scholarship Hub allows free unlimited searches for scholarships, while Turn2Us has a site allowing you to search for grants from charitable funds.
You can also find the book The Guide To Educational Grants, published by The Directory for Social Change, in most public libraries, which gives more information on available funds your child can apply for.
Have the money conversation
With parents picking up so much of the tab for a student’s university living costs, communication and clear expectations are vital before the term even starts.
Ensuring you talk about how much of a contribution you are able to give to your child, and what they should do if they run out of money, is really important.
Ensuring that they understand the dangers of high-cost debt, such as student credit cards, will hopefully mean they do not rack up high-interest charges while helping them to choose a student account with an interest-free overdraft will give them a buffer if times do get tough.
Danny Cox, at investment group Hargreaves Lansdown, says that student credit cards are often more expensive than other types of cards because students have not built up a credit record.
‘You face having to pay back these debts while you’re trying to get on your feet financially, so it’s worth taking the time to understand what you’re taking on before you dive in,’ he says.
Case study: ‘I was surprised by how much parents are expected to pay’
Lauren Rosenberg is preparing for the third of her five children to go to university, so is well aware of the expense involved for parents.
‘I was surprised by the amount that parents needed to pay,’ she says. ‘You have to apply for the grant and then it’s up to the parents to top it up really, and that adds up, especially with rent.’
The fear and phobia expert is enthusiastic about the financial merits of studying from home. Even though the family live in London, one of Lauren’s older daughters has just finished at Leeds University and commuted for her final year.
With her younger daughter, who will be studying nursing, Lauren says she encouraged her only to apply in London, partly because of fears of further coronavirus lockdowns but also because of the expense.
‘She’s going to stay at home and commute every day, and that means she won’t have to pay any rent,’ Lauren says.
‘I mean, in a way it would have been nice for her to have the experience to go away. But really, there’s the cost of having to buy everything because I know what happened with my other daughter. We had to go and buy all the bed linens and duvets and cutlery and crockery and everything, so she’s staying here.’
If it all goes wrong
If your son or daughter runs out of money earlier in the term than expected, you will need, as a parent, to decide whether you’re willing (or able) to keep topping them up or whether you will submit them to an uncomfortable few weeks.
Jon Dale, of the University of Sussex, says every university has money advisers who can help your student son or daughter to get back on track with their finances.
‘If you think that your finances are slipping out of your control, make contact and see what support they can offer,’ he advises students.
Starting Early – Should you invest now so your child graduates debt-free?
For parents of younger children reading this article now, being proactive about saving for university could leave you with fewer issues later.
Figures from Fidelity suggest that choosing to invest £180 a month into a tax-free Junior ISA from the moment a child is born could generate a pot of money worth £55,000, enough to cover university costs.
For those with less to invest, a monthly saving of £100 could generate returns of £30,874 – more than three years’ worth of tuition fees.
Junior Isas (or Jisas) are handed over to the child once they reach 18, so the money could be used by them to pay university costs, and even graduate debt-free in some cases.
However, Myron Jobson, personal finance campaigner at investment platform Interactive Investor, says that although the idea that your child could leave university debt-free is attractive, the unique nature of student debt means that this is not always the best decision.
‘If you’ve been lucky enough to amass a decent stock and shares Junior Isa pot, it could shave a sizeable chunk off your student debt. Whether you use it for university is much more difficult and personal,’ he says.
Interest rates on student loans can be high (currently 5.6%), but you only start repaying the loan once you earn just over £27,000, and the debt is wiped after 30 years.
‘The Government only expects that 25% of current full-time undergraduates who take out loans will repay them in full,’ Myron says.
‘While funding university yourself is a laudable aim, it is not the most financially cogent approach to take in many cases, as many graduates won’t need to repay the full debt.
‘By the same token, the interest rates on student loans can be eye-watering, so there are no easy answers.’