Whether it’s tuition fees or living costs, going to university isn’t cheap. So, if your child is planning on getting a degree, it could be helpful to plan ahead and start putting money aside as soon as you can. Here’s a short guide to help you prepare for your child’s future in the best possible way.
How much does it cost to go to university?
Going to university can cost a lot. Typically, a full-time student could expect to pay tuition fees of up to £9,250 a year – that’s £27,750 for a 3-year Bachelor’s degree, and £37,000 for a 4-year Master’s degree1. But don’t worry, students don’t need to pay their tuition fees upfront, instead, they can get a tuition fee loan that pays the fees on their behalf. Of course, your child will need to pay back this loan, but not before they finish or leave their course and start earning an income that’s above the repayment threshold, which is currently set at £27,295 a year2. Needless to say, the greater your child’s tuition fees are, the longer they’ll be in debt for. So, it’s important to try and help them as much as you can to relieve the future financial burden. However, tuition fees don’t apply to every student! Scottish and EU citizens studying in Scotland don’t need to pay any tuition fees as they’re fully covered by the Student Awards Agency for Scotland, so in this case, you won’t need to worry about the impact of tuition fees on your child’s financial future3. Also, depending on your income, your child could be eligible for grants to help cover the cost of tuition.
In addition to paying tuition fees, your child will, probably for the first time in their life, need to consider living costs. This will need to include accommodation, bills, transport, books, food, and leisure. According to Save the Student, living costs for the average student come to £795 a month – that’s over £9,000 a year4! Again, your child isn’t expected to pay for everything out of their own pocket. They can apply for a maintenance loan that will give them some money to help cover their expenses. The amount your child will be eligible for will depend on your household income and where they’ll be living whilst studying. To give you an idea of how much your child could receive in their future university life, it’s useful to have a look at the current amounts. For the 2021/2022 academic year, students who live at home should be able to get up to £7,987. Those who live outside London could receive up to £9,488, whilst Londoners could be given up to 12,3825. There’s no denying it, these loans are great to help students afford the cost of living at university, but it’s important to remember that they are loans, meaning they’ll need to be paid back once your child starts working and earning enough. And with tuition fees, student debt could quickly pile up.
Say, your child plans on completing a 3-year degree, and needs to pay the full tuition fee - £9,250 a year. Then, let’s imagine they’re studying somewhere outside London and are entitled to the full maintenance loan - £9,488 a year. Before they even start working, they could expect a student debt of £56,214!
More than ever, it could be worth keeping your child’s student debt to a minimum, so they can enter the workplace without worrying much about money.
So, how can you help your child with university fees and living costs?
If you want to help your child with university fees and living costs, it could be a good idea to open a Junior ISA where you can put money away for their future. There are two types of Junior ISAs. You’ve got Junior Cash ISAs that let you save money for your child in a tax friendly way – this could be a good way to build them an emergency fund for the future. But over the long-term, it may not be enough. With a Junior Cash ISA, your child will get interest rate on their money, but every time this rate falls below the rate of inflation, the real value of their savings will effectively fall. This means that their pot won’t be growing as fast as everything else, including their future living costs.
So, it may be worth having a look at the second type of Junior ISA: Junior Stocks and Shares ISAs. With a Junior Stock and Shares ISA, you can invest your child’s money in shares and bonds without having to pay income and capital gains tax. With investing, there’s always a risk you could end up with less than you initially put in, but over the long-term, investments tend to perform better than cash. A study conducted by Barclays found that historically, shares have performed better than cash 90% of the time when investing over a 10-year period6. And that’s not all! According to other studies, the longer you remain invested, the more likely you are to make a gain. People who stayed invested in the FTSE 100 for any 10-year period between 1986 and 2019, have had an 89% chance of making a positive return7. So, if your child is still little, investing in a Junior ISA could help their money blossom.
In total, your child can only have one Junior Cash ISA and one Junior Stocks and Shares ISA. Every tax year, you’ll be able to contribute up to £9,000 (subject to change) – this is your child’s annual ISA allowance and you can either put it all in one Junior ISA account or split it between their Junior Cash ISA and Junior Stocks and Shares ISA. The good thing about Junior ISAs is that your child’s money is locked away until their 18th birthday, meaning nobody can dip into their savings until they turn 18. This also means that the earlier you start putting money aside, the longer it’ll have to potentially grow.
For instance, if you open a Junior Stocks and Shares ISA as soon as your child is born with an initial investment of £200 and put in £200 a month thereafter, your child could enjoy their 18th birthday with a pot worth £59,890, which should help with their university fees and living costs8.
How to open a Junior Stocks and Shares ISA
If you’re thinking about opening a Junior Stocks and Shares ISA, using a digital investment platform, like Wealthify, could help. All you need to do is enter some details about your child, choose how much you’d like to invest (and it can be as low as £1!), and select the risk level that suits you and your child. We’ll do the rest, from picking your investments to managing your child’s ISA on an ongoing basis. But it doesn’t stop there! You’ll also be able to check how your child’s Plan is performing anywhere, at any time.
References:
1: https://www.ucas.com/finance/undergraduate-tuition-fees-and-student-loans
2: https://www.ucas.com/student-finance-england/repaying-your-student-loan
3: https://www.study.eu/article/tuition-fees-in-scotland
4: https://www.savethestudent.org/student-finance/parents-guide-tips-university.html
5: https://www.gov.uk/student-finance/new-fulltime-students
7: Data from Bloomberg
8: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £46,798. If markets perform better, your return could be £76,949. Values correct as of 15/08/21.
Figures in this blog are only forecasts and are not reliable indicator of future performance.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
