Plan Early For the Costs of University

11th September 2013

Many eighteen year olds will now be preparing for their departure to university.

Many parents may therefore be wondering how they are going to fund their children going to university.

The costs of a university education can be enormous – £57,000 is not an unreasonable estimate when one adds the maintenance/daily living costs of, say, £10,000 per annum to the tuition fees of up to £9,000 per annum in England.

Whilst there is an attractive loan facility in place to help university students with these costs, many parents are concerned that their children may be leaving university with a substantial debt that could take years to repay.  Indeed, due to the addition of interest, the outstanding debt will increase for those with higher incomes in later life.  And, of course, that outstanding debt may have a significant impact on another important financial issue for children – namely the desire to purchase a house.

In order to give the child financial assistance, one solution is for parents or grandparents to save.  For many this will involve saving money on a regular basis, which generally means the earlier you start the easier it will be.

How much is needed?

The amount of cash needed to see a student through university can be substantial.  Let’s take a parent who wishes to advance fund for the university costs of their three-year old daughter.

The objective is to accumulate £57,000 (in current terms) in 15 years’ time.  However, these costs are likely to increase because of inflation. For example if the cost increased by 3% per annum, the cash needed in 15 years’ time would increase to a whopping £89,341.

The amount needed to invest or save to meet this target will depend on the expected return.  Assuming  a growth rate of 6% per annum net (from a “balanced” investment portfolio) and ignoring any tax when the investment is cashed in, this would mean that a lump sum of £36,418 would need to be invested now.  Alternatively, a regular monthly investment of £305 per month would achieve a similar outcome.

When setting up a savings plan to provide for a child’s university costs, it is worth bearing in mind that the more tax efficient the investment, the greater the potential return will be.

Call us if you would like to discuss planning for the costs of a university education.