Affording University - Costs & Funding

The recent news and controversy surrounding the revamp of the tuition fee system and the resulting rise in tuition fees across most of the higher education institutions in the UK has focused the minds for many parents with concerns over how their children will afford a university experience.

Despite the impending rises in tuition fees the number of students attending university continues to rise with perception that an academic experience and qualification at degree level is a key precursor to a successful career. Many employers no doubt favour those who have demonstrated their ability to achieve a higher level qualification and the implicit skill sets required to get there. While young adults looking forward to their working life (as well as their parents) are keen to get any advantage they can to compete in an evermore ruthless job market.

Before considering what finances will need to be in place before you child goes to university it is worth looking at the costs and funding that will be available at the time. Under the new system the costs of university can be split into two camps: tuition fees and living costs.

Tuition Fees
Universities in the UK will be permitted to levy tuition fees of up to £9,000 a year from 2012 onwards, for a full time student, although these fees will vary from one institution to another. The fees will be paid directly by the Student Loans company and so will form all or part of a student’s Student Loan.

Living Costs
Essentially a student will have to cover similar living costs to those that anyone else would need to afford, such as rent, utilities, food and clothes, whilst also paying for the resources they will need for their academic activities such as books, stationary and computers. Not to mention the cost of partaking in the rich social side of university life.

Living costs vary per location with the largest chunk of it, rent, being the determining factor but typically costs can be anywhere from £500 to £1,000 a month. University websites will often have a guide to the more specific costs of living whilst attending that university so it is always worth checking a range of institutions to get an idea.

From 2012, these costs may be covered by a maintenance loans, maintenance grants, scholarships or bursaries.

Maintenance Loans will be means tested with varying limits depending on whether the student is living at home or university, and whether they are attending university in London or not. For example, a typical student living at university outside London may be entitled to up to £5,500 a year, whereas those in London can get £7,675 and those living at home may receive up to £4,375.

Maintenance grants will be available to students with household incomes below £42,600 and the full grant amount of £3,250 a year would be available if that income were below £25,000. Scholarships and bursaries may be available from the university directly or sources such as the National Scholarship Programme which aims to assist students from low income households (below £25,000/year).

When planning the financial support needed for a student to pay for university it is also worth considering how and when the debt they accrue needs to be repaid. Grants and scholarships are obviously non-repayable whilst Student Loans, consisting of a tuition fee loan and/or maintenance loan will only become repayable once the graduate is earning over £21,000 per year. The loans will then be repayable at a rate of 9% of any salary above that threshold whilst the underlying debt itself will rise in line with inflation.

Although it is debatable as to whether it would be the most effective use of money to pay off the debts incurred by tuition fees early due to the low interest rates and long term repayment schedules, it is always sensible to bear in mind options such as a Junior ISA which will allow you to build a tax free nest egg to help your child afford the living costs and minimise those debts as they embark on adult life.