SINCE university tuition fees were first introduced in 1998, they have soared from £1,000 per year to a whopping £9,000 – the current annual cap on the amount universities are permitted to charge.
The government sought to solve the problem of the greater strain this would place on families by introducing special student loans, which are only paid back after the graduate is earning a minimum salary. This minimum amount went up from £15,000 to £21,000 in 2010, following the Browne Review.
Student loans are all very well, but with undergraduate students now leaving university with an average of £40,000 debt, and those with advanced degrees considerably more, families need to take a serious look at how best to save towards the mounting cost of education.
All of this, of course, is coming as a shock to a generation of parents who got university education for free. From 1962 until 1998, local authorities gave all university students a grant which didn’t need to be repaid, as well as covering all tuition fees.
HOW YOU CAN HELP YOUR CHILDREN OVERCOME THE DEBT BURDEN
If you’re not thrilled with the prospect of your children starting their adult life saddled with a debt they’re unlikely to ever repay in full, what are your options?
First, make sure you have a clear idea of the goals you are saving towards and the funds available. For example, how many children will you have to save for? What will the estimated cost of tuition and living be when they are university age? And are you likely to get help from grandparents?
Second, keep the money in pots that relate to distinct goals. For example, a pot for their rental costs, one for tuition fees and so on. Our research shows that people who save in this way are far more likely to succeed than those just investing a lump sum in a general account. This is known as “commitment bias”. It’s harder to give up saving when it relates directly to your children having a roof over their head!
Third, start young. A Junior Isa lets you put away £4,000 per year for your child until they are 18. You (on their behalf) could amass a potential £72,000 in deposits alone this way, before accounting for any compound interest or returns. However, when the child turns 18, the money belongs to them, and there’s always the risk that they may see fit to spend it on things other than tuition fees – not all 18 year olds are that sensible with money.
Fourth, consider the sacrifices and act sensibly. If you don’t have available income or savings for a Junior Isa then top up your own Isa and try not to use the proceeds unless you must. By budgeting well and investing long term, you might be able to cover university costs and take that long-awaited holiday – but it might have to wait until after graduation. (Of course, there’s no need to take the children away with you!).
There are plenty of other considerations: university costs abroad can be significantly higher, or your children may not want to go to university after all. The key is to take a deep breath and rationalise – this is an important investment in the future.
Nick Hungerford is chief executive and founder of Nutmeg. www.nutmeg.com