Recent figures from the Institute of Fiscal Studies suggest that the average total debt incurred by today’s university students over the duration of their studies amounts to £51,000. The new figure comes as those in higher education see the interest rate on student loans rise to 6.1% in September, despite the Bank of England base rate remaining at its lowest ever figure of just 0.25%. The rise means that students will now typically have mounted up £5,800 of interest by the time they graduate.
Total student debt in the UK has now risen to £100 billion, a figure higher than the nation’s total credit card debt.
The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives.
Many parents who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest or in fact the value is being eroded by inflation. When saving over a medium to long term you should strongly consider investing in a mix of investments to help you achieve better returns and offset the impact of inflation.
So what are the options available to you if you are planning on saving funds to help your children through Uni?
- You could consider a Junior ISA (JISA) in your child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, so saving the maximum allowance for ten years, would result in a nest egg of £41,280 tax free to cover university fees and other expenses, and that does not include any savings interest or investment growth which might be achieved.
- If you are looking for more control of the funds for when your child starts university you can save and invest the funds in your name, by using your ISA allowance which is £20,000 per adult, £40,000 per couple. You could also consider using other investment solutions such as an Insurance Company Bond or your Pension plan if you are going to be old enough to access your pension prior to your children starting Uni.
Other sources of funding could be Grandparents, Aunts and Uncles. If they were planning on gifting money to your children on their death, maybe they could consider helping with your child’s university costs in their lifetime. This type of planning could well help reduce their inheritance tax liability and allow their loved ones to benefit from their legacy when they really need it.
If you are looking for an IFA based in Manchester and you would like to chat to us about how you can save now for future education fees or any other financial matter, simply call your usual Cullen Wealth consultant or our office on 0161 975 6700.