Student Finance: Planning for university fees

Are university fees looming in your household? Maybe your teenager is already collecting their belongings together ready to start their next chapter in life as a student. Even if your ‘mini-me’ has only just chosen their GCSE subjects, no doubt university fees will be something you ponder with some fear and trepidation.

How to plan for student fees

With maximum tuition fees at £9,250 per year, that’s without even starting to think about the cost of homing, feeding and supporting your little darling, university fees can seem an out of reach expense even for the most hard-working and reasonably well off.

If your child decides to follow in your ‘medical footsteps’ and become a doctor or dentist then you are looking at around 5 years plus of fees (more on this later). Worse still, if they want to train to be an architect, you could be looking at about 7 years of tuition fees and living expenses – that’s a lot of fees!

How do I plan for student fees?

Forget spreadsheets estimating the total cost of university, it will only reduce you to tears! Just concentrate on the loans and assistance available to you. This will help you to understand the process of university funding more thoroughly.

The basics

The university funding ‘package’ is made up of two parts:

1. Tuition fee loans

2. Maintenance support

Broadly speaking your child should be eligible for both providing they are studying an approved course at a registered university and haven’t previously started a degree or similar course.

They’ll also need to be a UK citizen (or have ‘settled’ status) and have been living in the UK for at least 3 years before the course start date.

EU students can apply for the tuition fee loan but won’t usually qualify for any assistance towards living costs. Rules and amounts also vary; if you’re a part-time student, over 60, or claiming special circumstances such as refugee status.

Tuition fee loans

Those of you lucky enough to live in Scotland or Northern Ireland may not have to pay a tuition fee if your child studies in your home country. With such great universities in both, it does beg the question of why go somewhere else? The rest of us need to cough up £9,250 pa normally. Take a look at the chart below to see if you are in the minority with lower tuition fees.

Tuition fees by region for courses starting in 2019

Student's home region Studying in England Studying in Scotland Studying in Wales Studying in Northern Ireland
England Up to £9,250 Up to £9,250 Up to £9,000 Up to £9,250
Scotland Up to £9,250 No fee Up to £9,000 Up to £9,250
Wales Up to £9,250 Up to £9,250 Up to £9,000 Up to £9,250
N.Ireland Up to £9,250 Up to £9,250 Up to £9,000 Up to £4,160
EU Up to £9,250 No fee Up to £9,000 Up to £4,160
Other International Variable Variable Variable Variable

Source: UCAS: undergraduate tuition fees and students loans

Note:
Tuition fee loans cover the full cost of the course and are paid directly to the course provider.

Maintenance support

So that’s the tuition covered! However, these students of ours have living costs and this is often where many parents get a bit confused and misunderstood.

The average student spends £770/month** on accommodation, food, transport, textbooks, and anything else you deem essential. That’s £9,240 pa! Bear in mind, local variations in cost occur but let’s just use this as a working figure.

What is a maintenance loan?

Your child can apply for a maintenance loan that is payable to them and thus they need to budget carefully. When it’s gone, it’s gone! Its paid termly in England and monthly in Scotland.

The level of a maintenance loan available to your child is decided by your household income. As you can see from the table below once this exceeds £62,212 the maximum loan is £4,168 pa and would be added to the tuition loan and repaid in the same manner as noted above.

The table shows the maximum figure you could apply for. However, you aren’t guaranteed to get this! Apply early so you can make a ‘plan b’ if unsuccessful.

Also, don’t forget you have to apply each year.

Maximum Maintenance Loan 2019/20

Household Income Living at home Away from home (outside London) Away from home (London)
Less than £25,000 £7,529 £8,944 £11,672
£30,000 £6,859 £8,303 £11,020
£35,000 £6,260 £7,661 £10,367
£40,000 £5,626 £7,019 £9,714
£45,000 £4,991 £6,377 £9,062
£50,000 £4,357 £5,735 £8,409
£55,000 £3,722 £5,093 £7,756
£60,000 £3,414 £4,452 £7,103
£62,212+ £3,414 £4,168 £5,812

Source:  www.savethestudent.org

Working on the £770 pm / £9,240 pa living costs estimate, this would mean if your household income is above £62,212 and your child was at university outside of London and not living at home, you would need to find an additional £5,072 pa from your net income.

Things are a little different in Wales and Northern Ireland

All new welsh students will receive their maintenance package as a mixture of grants (which don’t have to be paid back) and loans (which do have to be paid back). The combination is determined by parental household income.

The total sum assumed necessary for a welsh student living away from home but not in London is £9,225 pa. The mix between grant and loan varies. Where the household income is £18,370 pa or less the student would receive £8,100 pa grant, and only need to apply for £1,125 loan. This changes incrementally until the household income goes above £59,200 pa. Then the two figures reverse with £1,000 grant and £8,225 loan.

The living costs assumed change if you are living at home (£7,840 pa) or go to university in London (£11,530 pa). However, the proportions and income brackets are the same.

Northern Ireland offers a mix of maintenance loans and grants too. With a parental household income of less than £19,203 pa, your child would receive a £3,475 pa grant. This reduces as income rises until it disappears and a full loan needs to be taken if the parental earnings exceed £41,065 pa.

Do bursaries still exist?

The short answer is, yes! However, bursaries are such complex areas that I could write a whole other article about them. You may not qualify for any but it’s always worth a look – Student grants and bursaries

What about if you are divorced, are both parents income still taken into account? 

The simple and relieving answer is no. Your child will select the parent they live with most of the time. If it is equal they are allowed to elect one parent, so it would seem logical to choose the parent with the lowest income. Thus making more of the living costs coverable through the maintenance loan rather than parental contribution.

What if you have a budding medic in the family?

The funding is slightly different. In each of your first 4 years, you could get:

  • £9,250 tuition fee loan to pay for their course.
  • £4,168 maximum maintenance loan to pay living costs, but as mentioned this is means-tested.

In your fifth and sixth years, you could get up to £2,389 maximum reduced maintenance loan. You will need to pay more for their living costs in these years or they would need to secure alternative loans from banks, etc.

Finally,

How are these loans repaid?

Key points to remember:

  1. The loan won’t have to be paid back until after the course is complete and your child is earning more than £18,935 a year in Northern Ireland and Scotland or £25,725 a year in England and Wales. **
  2. They will then pay 9% of their earnings over the threshold income as noted above. It’s best to think of it as an additional tax. If your child started earning £28,800 pa. That’s £3,075 pa over the threshold. Divided by 12 months = £257 pm x 9% = £23pm will be repaid in England and Wales. In Northern Ireland and Scotland, it would be £74 pm.
  3. As you can see the sum borrowed has no bearing on what your child will repay.
  4. Since 2012 the interest rate has been set at Retail Price Index (RPI) + 3%. This means it is now a shocking 6.3% annually. This is rolled up and added to the borrowed sum.
  5. If you’re an employee, your ‘income’ that is used to calculate how much you will repay isn’t the amount that hits your bank each month. They use the full ‘gross’ income, meaning before tax, national insurance, and any pension contributions are taken out.
  6. Don’t forget: If the loan isn’t repaid after 30 years (25 years in Northern Ireland) then it’s wiped out and no more payments are due.

N.B. As a rule, if you took out your student loan before September 2012 then your interest rate is lower. If you aren’t sure which loan type (1 or 2) you have, I suggest you go to this government page to see the definition of each.

If finding the university fees means drawing down from your personal pension, rediverting private school fees or ‘just’ finding the extra from your income, with some careful planning, and prudent advanced saving university fees can be managed.

You could even use your child’s education as an investment opportunity, and buy a 2nd property! Your child will need accommodation in a city away from home. Why not repay your own mortgage, with the help of other student tenants if your finances will allow?

“Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.”

However you decide to fund your child’s university fees make sure you plan, take advice and look as far into the future as you can! Whatever you do don’t stick your head in the sand and rely on a political change to solve the problem.

How will you fund your child’s university fees? Let us know by adding a comment below.

** Student Finance 

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