Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

UNIVERSITY may not be part of everyone’s plan. But if you’re a parent or grandparent, it still makes sense to save because let’s face it, university is an expensive investment. 

A typical three-year degree costs £27,750 in tuition fees. And average student living costs are about £924 per month1.
 
The most popular way to fund a degree in the UK is to apply for a student loan and that’s the route I went down.

There are a number of different student loan plans out there. It’s important to know which plan you’re on as it affects how much interest you’re charged, how high your repayments are, and when your loan gets cleared. You can find out more here.

Since I’m on plan 2, my loan increases with the retail price index (RPI) plus 3%, so it’d be impossible to pay it all off. However, I do contribute to it. Each month, a small sum is automatically taken out of my salary. I’m not obligated to contribute anything extra on top of this amount.

And the good thing about student loans in the UK is that there’s no penalty if I don’t pay it back. My outstanding balance will be wiped in less than 30 years.

Watch out, rules are changing this August 

The rules are changing for students starting a course on or after 1 August 2023.

The introduction of the new Plan 5 repayment schemes has two major changes. Under the new plan, students will start repaying their loans when they earn over £25,000. The previous threshold was £27,295. 

The duration students will repay their loan has also been extended by 10 years. Plan 5 loans will now be written off 40 years after the April you were first due to start repaying the loan, rather than the original 30 years2.

If you want to give your child or grandchild a head start, you may want to consider putting some money aside when they’re growing up. An ISA is a tax-efficient way to do this.
 
This change may prompt more parents and grandparents to think about paying for their child or grandchild’s tuition fees.

If you can afford to, why not?

Help with living costs 

As well as deciding whether to pay off their tuition fees, many parents could also find they’re expected to contribute to living costs.

Although, it’s not obligatory to take out a maintenance loan. If a student does opt to take it out, the amount they receive is dependent on your household income. 

You may find the loan doesn’t cover all their day-to-day costs, so don’t be surprised if you’re expected to contribute. One of my friends told me that her maintenance loan barely covered living costs. 

“I had no option other than to take up a part time job to help fund my living costs. Tutoring through the week and working in the holidays contributed to these costs but I was also fortunate enough to have my parents to help, should I have needed.”

One way to tackle this is to plan ahead. And it doesn’t need to be complicated. You can contribute a regular sum each month. 

Analysis by Fidelity International found that if you were to invest £178 a month into a Junior ISA as soon as your child was born, you could generate more than £57,000 over 18 years. 

Potential returns generated by investing into a JISA over 18 years

Monthly contribution into a JISA over 18 years 

Total return* 

£50

£16,237

£85

£27,604

£90

£29,277 

£100

£32,475 

£150

£48,712 

£175

£56,831 

£178

£57,805

* Fidelity International, July 2023. Calculations are based upon investing into a Junior ISA for 18 years (216 months) with a 5% growth per annum, minus a 0.75% annual management charge (net 4.25%). Fidelity Personal Investing does not charge a service fee on Junior products, including JISAs or JSIPPs (Junior SIPPs). 

If you haven’t started investing, it’s never too late. You can set up a regular savings plan in a Stocks and Shares ISA, and/or a Junior ISA. Remember, we don’t charge a service fee on junior products. 

Help them get on the property ladder 

You could also use some money to contribute to your child’s house deposit. 

One friend I spoke to said, “If my parents could’ve afforded to pay for my tuition, that would've been nice-to-have. But getting help towards saving for my first home would have been more valuable.” 

With average house prices at £285,044, saving up a healthy deposit as a young person is hard work. It gets even harder when you factor in steep rents, rising food prices and high inflation. 

The value of money 

Part of the student experience is learning about the value of money.  

To pay for my living costs, I applied for a maintenance loan and received some help from the Bank of mum and dad. 

One friend I spoke to said she worked part-time alongside paid internships which was ‘exhausting’.  

 “After handing in my final assignment, I slept for 12 hours,” she said.  

Balancing work alongside university is hard, particularly in the final year where assignments and exams really ramp up. In my final year of university, I stopped working so I could concentrate on my degree.  

Still, there’s a chance the young person you’re saving up for may not end up going to university.  

Maybe they’ll take a gap year and travel the world or complete an apprenticeship. Maybe they’ll dive straight into the world of work. Regardless of what they do, giving them a financial head start is one of the greatest investments you could make.  

I’m glad I took out a student loan. I got the opportunity to study a subject I was passionate about in the big city. I got experiences that I never would have dreamed of had I studied local. 

Although I have to pay back a small sum each month, I’m not missing out on life. I can afford to save a little bit each month and I’m proud of where I’ve got to.  

Sources 

1. Save the student, 29 October 2022  

2. The Times, 24 July 2023  

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children. Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account, but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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