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How to pay your child’s way through university

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

So they got the grades and the blood, sweat and tears of early summer when revision prep seemed to be never-ending, can now be confined to exam folklore.

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Your child’s school days are now officially over and these fully-fledged young adults are about to venture out into a whole new world.

Student life is just around the corner. And with it a whole new world of debt. Unfortunately debts are now inevitable for most students. Students heading off to university in September will pay £9,250 a year for full-time study and £4,625 for part-time study. Living costs, of course, need to be added to this for students living away from home. And long gone too are the maintenance grants that used to give students from families with annual incomes of £25,000 or less a grant of £3,387 a year.

According to National Student Money Survey 2019, a UK-wide survey of 3,385 students, students can expect to spend £807 a month while they’re at uni. Parents contribute £134 a month but one in three students say that’s not enough. Especially so when you consider that 25% of those surveyed said they had absolutely no savings.

It’s little surprise then that the average student will end up saddled with debts of more than £50,000 when they graduate, according to the Institute for Fiscal Studies.

Going to university has become a very expensive business.

And none of these are small sums. Yet too few students – and their parents – are sufficiently prepared for the cost of student life.

The latest research from the Association of Investment Companies (AIC) shows that both students and parents underestimate the level of debt that students have when they finally come to graduate.

Students were the more realistic of the two, estimating they would leave uni with debts of around £41,697, whereas parents estimated £24,145. More than half the true figure.

Despite largely taking a ‘head in the sand’ approach to funding their child’s university career, the research also showed that parents were willing to go to great lengths to help their children with university costs or do so already. Not surprisingly, wealthier parents are more likely to help, with 69% of parents from social grades ABC1 expecting to be able to meet some university costs compared with 54% of those from grades C2DE. Single parents are much less likely to contribute (48%) than those who are married (69%). 

Parents are much more likely to tuck money away in cash savings accounts for their children’s future than to invest it in the stock market. Some 62% of parents have used cash accounts, compared to 13% who have used investment companies, 13% who have invested in shares, 8% who have bought property and 7% who have used unit trusts or OEICs. 

Many parents will naturally feel uneasy at the thought of their children being burdened with such a large, long term debt and may be tempted to help them pay for their university education up front. With forward planning, this is achievable.

Plan ahead

If your offspring are not quite at the ‘off to uni’ stage of their lives then you’re in a good position to start saving and investing now, so you’re both financially prepared.

Use your own ISA allowance and don’t forget your child’s Junior ISA (JISA) allowance. Each child eligible for a JISA can invest up to £4,368 in the current tax year. Grandparents, relatives and friends can all contribute too – so encourage generous friends and relatives to pop money straight into the JISA at birthdays and Christmas times.

With the Fidelity JISA you can invest lump sums of £1,000 or set-up a regular savings plan from as little as £50 a month. The money will be safely ‘locked away’ until the child reaches the age of 18 – perfect timing for university.

The earlier you start, the better. If you were to invest £180 a month into a Junior ISA from the moment they are born your child could be sitting on a pot worth more than £54,000 by the time they are 18 - enough to cover today’s 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 fees1. Please remember past performance is not a reliable indicator of future returns.

Parents wanting to maximise the Junior ISA allowance of £4,368 - equivalent to putting away £360 a month - on top of that could potentially launch their child into adulthood with a total sum of more than £110,0002.

Source:
1,2 Fidelity International, August 2019, calculations based upon investing into a JISA based on 5% growth per year and 0.75% annual management charge and platform service fees

Important information The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest and the value of tax savings of an ISA or Junior ISA depends on personal circumstances and all tax rules may change. Junior ISAs are only available to UK resident children under 18 who do not have and are not eligible for a Child Trust Fund (CTF). Please note that if your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your behalf so your child will not be eligible for a Junior ISA. The investment is locked away until the child reaches 18 years old. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

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