It’s that time of the year when thousands of teenagers across the country are waiting to find out if they’ve been accepted to university. As your child or grandchild starts the next chapter of their life, it’s natural to feel some concern as well as pride in their achievements. Understanding what university means financially can help put some of your worries to rest.
According to the Higher Education Statistics Agency, there are over 2.5 million students, with about 1.7 million studying for their first degree. It’s a figure that’s risen over the years as more young people go to university to further their education. However, it does mean that more teenagers are taking on the cost of fees and living independently so it’s important to manage finances.
For most students, student loans will play a key role in being able to afford their course and lifestyle costs.
Student loans: How do they work?
For the 2021/22 academic year, full-time UK undergraduate students will pay a maximum of £9,250 for their course. Over a typical three-year course, that adds up to £27,750. This can be covered by a student loan.
On top of this, students may need to take out a maintenance loan to cover living costs. For students living away from home, they can borrow £9,488 for each academic year (£12,382 when studying in London).
If your child took out the full tuition and maintenance loan each year for a three-year course, it’d add up to £56,214. That can seem like a daunting amount of debt to graduate with. However, student loans don’t work in the same way as a traditional loan.
Students going to university this year to study for an undergraduate degree will be part of “plan 2”. This means they won’t need to start paying back their student loan until they earn more than £2,274 a month (£27,288 a year). Once they exceed this threshold, the amount paid towards a student loan is fixed at 9%.
So, if they earn an income of £35,000, they will pay 9% of their salary over the threshold to pay off the loan; £57.70 a month. As a result, paying back student loans can be manageable and may be viewed more like a “graduate tax” rather than a traditional loan.
What’s more, the student loan will be written off after 30 years if the full amount hasn’t been repaid.
Do children or grandchildren still need financial support after taking out a student loan?
While student loans aren’t prohibitive for most wanting to pursue further education, studying can still be a financial struggle.
According to Save the Student, the average student’s living costs are £795 a month and more than half of this (£418) goes on rent. As a result, many could struggle to make ends meet if they’re relying on the maintenance loan alone.
Students may need to get a part-time job to support themselves or rely on support from family. So, if you want to help, what can you do?
There are many ways you can financially support children through university. If you have the funds to provide a lump sum, paying rental accommodation can be a huge weight off their mind. Alternatively, providing a reliable income to cover essentials or paying for course materials can help them budget more effectively. If you’re in a position to offer financial support, it can mean your child or grandchild can focus on studying.
While you may want to offer financial support, it’s important you understand the implications of doing so. Would paying for accommodation affect your long-term plans, for example? If you’re unsure what support you can offer or where to withdraw money from, making your child or grandchild’s education part of your financial plan can give you the confidence to proceed.
Preparing teenagers for financial independence
Even if you’ll be providing financial support, passing on financial education is an important step when teenagers go to university. For many, it will be the first time they’re expected to budget, manage bills, and take control financially. That can be a daunting prospect. It’s also common for students to be offered overdrafts and credits cards, so it’s important they understand how they work.
Spending some time talking about the basics of finances can ensure your child or grandchild is equipped to handle their own money at university. The maintenance loan, for instance, is deposited in a student’s account three times a year and they’ll then need to budget to ensure it lasts several months. Setting out a basic spending plan and going over the bills they need to consider each month can help them keep track and ensure they don’t spend too much too soon.
Do you want to support a child through further education? Whether they’re going to university this autumn or it’s still several years away, we can help make it part of your financial plan. Please contact us to talk about your goals.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Richard Fyfe is a Chartered Financial Planner and a Director of Fyfe Financial.