- Rent is rising faster than funding for students
- The student loans system relies on parents helping their children through university
For those attending university, it can be the best years of their lives. But for those having to stump up the cash for students to enjoy themselves, it’s quite a different experience. With tuition fees constantly being reviewed, and the cost of essentials such as food and accommodation rising, it’s never been as important to ensure you’re ready to fund your child’s university experience.
Parents with younger children have time to prepare – and can invest to help cover any shortfalls. But those with only a few years until their child turns 18 might need to rely more on cash.
Before squirrelling away thousands of pounds, it’s important parents know what support students receive from the state. Students have the option to take out a loan to pay for their academic fees each year. The payment is directly to the university and can amount to as much as £9,250 per year.
In addition to this, certain students qualify for a maintenance loan, which may go up to a maximum of £9,978 for individuals residing away from their parental home outside of London, or £12,002 within London. Both the tuition fee loan and maintenance loans have to be paid back and will be taken from the student’s salary once they start earning more than £27,660. What students qualify for in terms of maintenance loans (and subsequent grants) depends on the parental income, with higher earners assumed to support their children more, and therefore less funding is made available. Tuition fee loans are not affected by means-testing.
More and more parents are being expected to help or fully fund their children’s university experience and the cost of living crisis has only exacerbated this. Average rents have risen 8 per cent in the past year, according to StuRents, a student property website. However, maintenance loans only rose by 2.8 per cent, leaving students and their families to make up the shortfall. In some popular cities, students are left with just £30 a week to live on once rent is paid.
Paying the bills
The major expense for students is accommodation. According to the Student Money Survey 2022, students pay £924 per month on average on student accommodation. However, this does vary across the country and also, students in second and third years who move into private accommodation also pay less than those in specialist student halls. Rent makes up 45 per cent of the monthly living costs for a student, according to the survey.
Laura Suter, head of personal finance at AJ Bell, said this means, that including student loans, the cost for just turning up to university and having a roof over your head is more than £61,000 for the average three-year degree.
How much to save and where to invest
AJ Bell’s Suter has worked out how much parents need to save in order to help fund their child’s education, based on investing the cash each month, and achieving an average annual return of 4 per cent.
Students starting in 2023 will need £20,388 per year to cover their tuition fees and rent. However, Suter said in five years’ time will need £22,500 per year, assuming inflation of 2 per cent per year on both rents and fees. This means parents need to start investing £610 per month for the next five years, and for the three years their child is at university, to ensure the student finishes their degree debt free.
For a student starting in 10 years, parents should invest £375 per month to cover the expected £25,000 annual cost. And for a child that has just been born, parents should invest £230 per month.
As the required returns are only 4 per cent per year, Suter said multi-asset funds would be the best option for an invest and forget approach. Such portfolios have been gaining popularity due to their ability to invest across a range of markets and asset classes, offering diversification to investors.
She said: “Typically they have exposure to equities, bonds, cash, commodities and property. Such a diversified approach means you have irons in lots of fires, which is particularly appealing when tomorrow’s winners and losers are so hard to predict.”
Another advantage of multi-asset funds is that they appeal to more cautious investors by focusing on capital preservation. While these funds may not generate significant returns in a bull market, they offer downside protections when markets take a turn for the worse. They can and do fall in value, but the manager builds a portfolio that is constructed to minimise losses,” Suter added.
Such funds include Personal Assets Trust (PNL), Ruffer Investment Company (RICA) and Rathbone Multi-Asset Strategic Growth Portfolio (GB00B543P606).
