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09/10/18The cost of university: Parents expecting to pay £17,000

Going to university can be expensive. But not just for the student; parents are expecting to pay out thousands of pounds every year to help their child secure a degree.

Parents anticipate spending £5,721 each year their child is at university, according to research from Lloyds Bank. Over the course of an average three-year degree, it amounts to £17,165. With around half of young people choosing to pursue higher education, it’s an expense many households in the UK could be facing.

Just 10 years ago, the figure would have been enough to cover tuition fees and leave some leftover, that’s now not the case. Current tuition fees are capped at £9,250. With accessible student loans covering tuition fees, many parents are focussed on the other costs associated with university.

The research found:

  • Two-thirds of parents who anticipate sending their child to university expect to support them financially on some level
  • Only 14% of parents do not anticipate helping their child financially while they study
  • 65% of parents believe they will have to provide support with accommodation costs
  • 64% will offer financial help with items essential for study
  • 58% expect to pay some or all tuition fees
  • 52% will help with travel to and from classes
  • 23% are prepared to pay for luxuries

Robin Bullochs of Lloyds Bank said: “The costs associated with going to university can mount up quickly, and often it’s unexpected costs that rack up the bill making it essential to take some time to consider the many expenses that may arise and budget for how these will be afforded.”

The findings suggest parents will face additional outgoings they may not have factored into their budget once teens head to university. Having a fund you’ve been saving into before they go to university can help spread the cost. For families that have more than one child aspiring to achieve a university education, it could be essential.

With this mind, how can you save for the cost of supporting your child through university?

Junior Individual Savings Account (ISA)

Like their adult counterparts, Junior ISAs offer a tax-efficient way to save.

Each tax year you can add up to £4,260 into a Junior ISA. The interest or return made from a Junior ISA is tax-free. Any money you add to an ISA will be locked away until your child turns 18; at this point, it will be converted into an adult ISA and fully accessible to them.

If you’re considering opening a Junior ISA, you have two options: A Cash ISA or Stocks and Shares ISA. Which one is best for you will depend on your attitude to risk and how long you’ll invest for.

Junior Cash ISA: If you choose a Cash ISA, the money you put in is safe and you will get a defined amount of interest. That being said, there is a risk that the money won’t grow as quickly as inflation, meaning it loses value in real terms.

Junior Stocks and Shares ISA: A Stocks and Shares ISA offers you an opportunity to access potentially higher returns by investing. The return you receive will be dependent on the performance of the underlying investments. It is, of course, possible that the value may temporarily decrease at times.

Children’s savings account

There is a range of children’s savings accounts to choose from. Often, these types of accounts will offer you more flexibility, such as being able to make withdrawals. However, depending on the terms, this may come with a penalty, for example, losing the specified interest rate.

Children’s savings accounts can offer competitive interest rates that will allow the money you deposit to keep pace with inflation in real terms.

Some accounts will specify you put in a certain amount each month or limit contributions. As a result, weighing up the pros and cons of each account is important before you make a decision.

Child Trust Fund

If your child was born between 2002 and 2010, they will have a Child Trust Fund.

The now defunct government scheme aimed to help parents build up a savings account for children. Each account benefitted from an initial £250. Some children may have received more as an initial payment and benefitted from a further boost when they turned seven.

If you didn’t open a Child Trust Fund, the government will have automatically opened one in your child’s name. It’s estimated that 1.5 million Child Trust Funds are ‘lost’ or forgotten about. So, it’s worth looking into this and you can track down ‘lost’ accounts here. Once they turn 18, your child will be able to withdraw any money in the account and spend it as they wish.

Even if you haven’t added to the account since it was opened, it can provide a starting point to build future savings on. As the Child Trust Funds initiative has since been shelved, you can transfer the money into a Junior ISA account if you choose.

Bare Trust

A Bare Trust is the simplest form of trust. It’s where a gift is held for the beneficiary, it can be opened by anyone and then managed directly. The child will be entitled to the money, and able to withdraw it, once they turn 18.

There are several benefits to using a Bare Trust:

  • First, the trustee can withdraw money from the Trust before the beneficiary turns 18, so long as it’s to benefit the child. It gives you a level of flexibility that some of the other options don’t have. For example, you could take out money to pay for college or sixth form fees.
  • You can also manage the Trust directly. If you’d like to make specific investments or have a clear risk profile, a Bare Trust might suit your needs.
  • Finally, there’s no contribution limit; you can add as much as you like to a Bare Trust.

As well as the options above, you may also want to consider saving or investing money in your own name. This is a good option if you don’t want your child to have full control and access to the money when they turn 18. It allows you to retain some control over how it’s spent and how quickly.

If you want tailored advice on saving for your child or grandchild, we’re here to support you. Taking your personal circumstances into consideration, we can help you choose the savings vehicle that’s best for you.

Please note: The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.