How to help your child pay for university

Graduates in England will leave university with £44,000 of debt, according to education charity Sutton Trust.

This includes an enormous loan to cover their tuition fees, eye-watering sums from their maintenance loan, and significant personal debts.

It’s quite a burden to be carrying as you embark on independent adult life, so it’s hardly surprising that parents desperately want to help.

In an ideal world they will have been putting money aside for years.

In reality, they are far more likely to have little or nothing saved for students set to fly the nest before the end of the year.

Fortunately, they still have options.

It may go against the grain, but one approach is to allow your children to borrow as much cash from the Government as possible.

This includes tuition fee loans, to cover fees of up £9,250 a year.

It also includes maintenance loans, which vary in size depending where on they are studying and what the household income is, but can be for as much as £11,002.

Parents may feel they’re not doing their best for their children if they let them take on this debt.

However, it may actually be the most cost-effective approach, because of the way these loans work.

They don’t have to be paid off quickly: repayments will only start once they graduate, and are earning at least £21,000.

The size of the repayments will depend on their income, and for someone earning £24,000 would be £48 a month, so they’re not crippling.

Crucially, once 30 years have passed since graduation, the whole of the remainder of the loan will be written off – which is expected to happen for 60% of students.

It means that only those whose children will emerge to a high-paying job will be better off paying for their tuition as soon as possible.

This doesn’t mean parents are in for a cheap few years, however.

According to a study last year by student information website Save The Student, 70% of students find the actual cost of living is far higher than the maintenance loan.

It varies dramatically depending on the student’s lifestyle and location but the University of Bristol puts it at between £9,000 and £15,000, while the University of Edinburgh estimates costs at between £7,620 and £15,360.

As a result, 80% of students say they worry about making ends meet, while 65% say their diet suffers as a result of financial difficulties, and 56% of students say their grades suffer because of the stress.

The Save The Student study found that 43% of students rely on their overdraft, and 10% have run up credit card debts. Alarmingly 2% have even turned to payday loans.

Different sources estimate the monthly shortfall between loans and outgoings at different levels.

The NUS puts it at between £500 and £650 a month, while Save The Student says it’s closer to £250.

It’s therefore worth calculating your child’s own shortfall, so you can see the size of the gap that will need to be closed.

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The first step is to look into scholarships, bursaries and grants, which are available from each college or university – as well as employers and professional bodies.

Some 37% of students say they get some income from this source, according to Save the Student.

Some are based on financial need, but others on academic merit, special skills, or career ambitions.

One useful place to start looking for financial help is thescholarshiphub.org.uk.

If you don’t qualify for any funding, then the next step may be to talk to grandparents about whether they could afford a monthly contribution.

This has two potential benefits: they can make up some of the shortfall, and they can get a tax benefit too.

The usual rule is that when someone dies, most cash gifts they have made in the previous seven years are considered as part of their estate for inheritance tax purposes.

However, if they can make regular gifts out of their income – without eating into any assets – then these are always excluded from IHT calculations.

If both sets of grandparents can consider even a small amount for three years, it can make a significant dent in the shortfall.

Jake Butler, operations director of Save the Student, says that in most cases, parents will also expect their offspring to contribute, through a part time job - either in term time, during the holidays, or both.

His study found that 67% of students work alongside their studies.

He adds, however, that “it’s important for parents and students to have an open conversation about it, to see how much part time work each student can practically do and still maintain their studies”.

This is particularly the case where they have a demanding academic schedule, with little opportunity to work without it impacting their course.

Once all these sources of income have been considered, it will be clear how much parents will need to find each month.

The Save the Student study found that 69% of students rely to some extent on cash from their parents to help them meet their living costs, and the majority also turn to their parents when they run short of cash.

Rent out a room

If your budget is too tight to find this money, there are still some options. One is to rent your child’s room out while they are at university.

At this stage you will be used to sharing your home with a teenager going through the stress of A-Levels, so you’re likely to be able to adapt to having a lodger in your home instead.

According to Spareroom.co.uk, the average room rents for £466 a month, and the Government’s rent-a-room scheme means you can make up to £4,250 a year tax free before you pay tax, so you could cover the lion’s share of the monthly payments this way.

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Consider buy-to-let

If you are happy to be a landlord (and have the funds for a deposit), then another option is to invest in a buy-to-let property for your child to live in at university, and rent out the bedrooms to their friends.

This solves the issue of accommodation costs, and provides rental income into the bargain. However, investing in a buy-to-let property is not a straightforward decision.

It comes with a host of costs – from tax to maintenance – from times when you cannot rent a room to the risk that interest rates will rise or house prices fall.

It’s therefore not an investment decision to be taken lightly.

In some cases, parents decide to borrow the money. Many will remortgage in order to free up cash, but this comes at a cost.

It’s important to look at the total cost over the lifetime of the mortgage, because even if your monthly payments don’t rise significantly, spreading payments over a decade or more will ensure you eventually repay far more than you borrow.

If borrowing more against the value of your home means extending the length of the mortgage, it’s also worth considering the impact on your retirement plans.

Read: how to become a landlord

While there are a number of ways to raise the money to pay for university, the other side of the equation mustn’t be overlooked.

Parents can also consider ways of bringing down the costs of study. The biggest saving to be made is if your children choose to study locally and live at home.

It isn’t right for every family, but if the local university is appropriate, and you can agree domestic arrangements, it could make everything far more affordable.

The other saving comes from sensible budgeting.

The Save the Student study found that one in four students have never budgeted, which is why so many of them run out of money part of the way through the month.

Many of them know very little about shopping around for cheap utilities, buying low cost groceries, or using coupons and vouchers to bring down the cost of socialising.

Nowadays there are plenty of tools that make budgeting easier, quicker and more rewarding - including money management apps, and sites that hunt down student-specific shopping advice and bargains.

However, Butler points out: “It’s difficult to get students to think about budgeting, because it seems boring.”

They key, therefore, is for parents to instil budgeting habits from an early age, so it’s something their offspring do without thinking.

If they have managed an allowance for the best part of a decade before they start their studies, they will have a huge head start on those whose parents simply pay for everything they need.

It’s safe to say that whatever parents do, the university years will not be cheap, or easy.

They will be marked by expensive monthly outlays, and desperate phone calls from students who have made wild miscalculations.

However, if parents have the right attitude to Government loans, a creative approach to paying the monthly expenses, and have given their children a thorough grounding in money matters, these three years don’t have to disrupt your long-term financial goals.