Saving for university: a short guide, 2023
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In 2023, Tuition Fee Loans still cover the full cost of a university course for most undergraduate students. However, these only apply to admin costs, lectures and other key academic services. They do not apply to living costs, personal technology and other items, such as travel.
Student living costs may add up to £11,088 per year (£33,264 over three years). Given that parents and even students may need to shoulder much of this, how can UK households save effectively for their child’s university education?
Below, our Grantham financial planners share some ideas and information to help you navigate this complex and important topic. Please feel free to share with someone who may benefit.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
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Why is university so expensive in the UK?
Compared to some other countries, UK university education may not look so bad. In the US, for instance, students may face costs of $35,551 (£28,605) per year – nearly three times as expensive as estimates for a UK university student.
However, UK further education is certainly not cheap. In 1998, the UK government decided to shift some of the financial burden from taxpayers to students by introducing tuition fees. These were initially capped at £1,000 per year. Yet by 2004, this was raised to £3,000, then again to £9,000 in 2012.
It is important to acknowledge that tuition fees do not place an immediate financial burden on students. Rather, you start paying the debt off later when you enter employment and your earnings exceed a particular threshold. However, living costs do need to be contended with.
Living costs have risen for almost everyone in the UK since mid-2021. This was partly due to increased economic activity after Covid lockdown restrictions were eased. Yet since early 2022, inflation has been exacerbated by Russia’s invasion of Ukraine – leading to global supply chain disruptions and surging wholesale prices for food and energy.
For students, this has often been particularly difficult to cope with. Maintenance loans – designed to support students with their day-to-day costs – have largely not kept up with inflation, leaving many with a “real” shortfall as high as £1,500.
If your child is currently in secondary (or primary) education, you may be watching the situation and wondering how to protect them from future money pressures at university. Below, our financial planners offer some ideas.
How can I help my child save for university?
There is currently a range of financial support schemes available to UK students – such as maintenance loans – which means that the full financial burden of university need not fall completely on the shoulders of students and parents.
However, these schemes might change in the years ahead. Perhaps they become more, or less, generous with new future governments. Having your own savings could help your child remain confident that they can afford their higher education when the time comes.
If your savings are not needed, you could commit these towards another financial goal (e.g. a child’s mortgage deposit on a first home).
A good first step is to consider which tax-efficient tools are available to help you, and your child, save for university. One option is the Junior ISA. In 2023-24, you can save up to £9,000 on your child’s behalf until they gain access to the account at age 18.
Any interest, dividends and capital gains generated within the Junior ISA will be tax-free. You are not limited to just saving in cash. You might choose to invest in shares and/or bonds instead, which could offer a higher potential return.
Speak to a financial adviser to explore the options. The earlier you start saving and investing, the more time the assets have to grow and benefit from compound interest.
Be careful not to assume that you need to save enough for your child to repay their Tuition Fee Loan. Remember, those with a Plan 2 student loan only start repaying when their annual earnings exceed £27,295 a year. The debt is also wiped 30 years after the April your child is first due to repay.
If we take the above estimates for student living costs in 2023 (£11,088), therefore, you may need to save £33,000 for a child’s living costs over a 3-year university course. However, this estimate should be adjusted for your child’s expected lifestyle, inflation and other factors – e.g. if the course is longer/shorter than 3 years.
Bear in mind that other options may affect how much you need to save. For instance, could your child take up a paid job during the future summer breaks and other university holidays? Also, will you be contributing money regularly to help support your child’s living costs?
Remember, at present, maintenance loans are dependent on a student’s household income. The MoneySavingExpert website has a useful calculator to help parents get a starting idea about how much they may be expected to contribute.
Often, parents’ experiences of the maintenance loan system are that they need to provide more financial support to their child at university than expected. Having dedicated university savings can, therefore, help take some strain away from your future monthly finances if this occurs.
Conclusion & invitation
Do you want to speak to a financial adviser about planning ahead for university costs for your family? Please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
