Going to university is a major milestone: it’s when we become independent and begin to find our own way in the world. Alongside new-found freedom comes the need to be financially responsible but young people often find themselves without the right tools and knowledge to know where to start. A recent survey found that 76% students said they wished they has received better financial education. With parents and guardians also often having to make a significant contribution to the pot, how can you help your employees prepare their family for the financial decisions that lie ahead?
Last year saw record university admissions with just over 541,000 students being accepted to start a UK-based course. With added stress and uncertainty around what the first semester might look like due to the current Covid-19 pandemic, here are the key areas families should be exploring now to get their children off to the best financial start.
How much will this actually cost?
- Tuition fees vary between England, N.Ireland, Scotland and Wales – there is a table in the UCAS website which explains how much needs to be paid depending on where you live and where you will be going. For most students in England the tuition fees will be £9,250 p.a. Student finance is the most efficient way of covering these and is also available for Open University courses: on-line courses have seen a spike in interest due to Covid-19.
- Finance, known as a maintenance loan is also available to cover the cost of living. This varies regionally, but with the average student accommodation costing around £100 a week on its own, the maintenance loan is needed by most. It has been announced that these will still be awarded if students are living at home in the first semester due to the pandemic.
- Maintenance loans are means-tested, so higher-income parents are expected to fill the gap; this is not explained on the loan paperwork, so many people are not aware of this implicit parental contribution. It can take 8-weeks to process applications, and they can be submitted now. You can find figures here, but it’s worth pointing out that families in the highest income bracket will be expected to contribute around £5k per year. If a household has experienced 15% or more loss of income because of coronavirus, they may be entitled to a bigger maintenance loan so they can request a reassessment.
What happens about paying it back?
- Given the large sums of money involved, it is understandable that parents are anxious to contribute as much as they can to tuition fees and maintenance to lessen the future debt burden of their children. However, many could be throwing away thousands of pounds by doing so, as in most cases they’ll pay more upfront than their child will ever need to pay back. Here is why:
- Students only start repaying from the April after they left uni. At that point they will pay 9% of everything earned above £26,575 a year. If they earn less than this, there is nothing to repay.
- This process continues until the earlier of 30 years, when the loan gets wiped or when the loan gets paid off. At the moment, only 17% of students in the UK will clear their loans and interest before they wipe at the 30-year mark. These tend to be people who consistently earn over £60K for the majority of their working life. For the remaining 83%, the loan works more like a 30-year long 9% additional tax than a debt – and worth noting it doesn’t appear on a credit report like a normal debt.
In summary, although it might appear scary seeing a student loan finance statement with a large sum of money to pay, in reality it’s 9% of earnings over £26,575 for 30 years, irrespective of how much is borrowed.
How can I start teaching my child about money?
- Being open and honest about money is the best place to start, so children are aware of the financial impact on themselves and their family of going to uni.
- A recent survey found that that one in six students had never budgeted, so running through simple budgeting techniques is a great place to start. The UCAS website has a useful budget calculator and we also have a range of printable budget planners for download here.
- Parents being upfront about what they will and won’t pay for will help their children feel they have a stake in their own education and help them think more clearly about their needs vs wants. Every family does it differently and it’s a case of finding something that works financially and practically.
Our webinar ‘Preparing Your Child for Uni’ is available now to help your employees prepare their families as best they can over the coming months. Contact us for more information or visit our course page for more details.