Many parents would like their children to be able to go to university, but the rising costs are beginning to influence these decision more and more. With a current estimate of nearly £60,000 for a 3 year undergraduate course, the need for some strategic financial planning well in advance is becoming critical for many people when planning for their children’s future.
There are of course many factors that could influence the actual cost parents have to bear, including for example where the university is located {London will cost more to live in than say Exeter}. Tuition fees have a current maximum of £9,000 per year with more and more universities now charging this maximum, but again the choice of university effects the total bill.
A lot of students will be eligible for student loans to cover their course fees and possibly some of their living costs. Whilst the rates are preferential, currently 1.5% interest is charged, and the students do not have to start paying this back until they earn more than £21,000 a year, this could be a huge debt to start a working life with. Over the duration of a three year course this debt could easily rise to over £40,000. Even at this level though, there is still a shortfall in covering the costs so some financial planning will be required.
There are a number of options that may be available for parents to make providing for university costs more efficient, depending upon their circumstances. However, for this article let’s assume that the parents decide to cover the whole £60,000 personally. The first major event that needs to happen would be the parents deciding that this may be a reality and that they want to do something about it well in advance of the start of the degree course. We are not talking a couple of years, but probably 10 years or longer. This sort of personal financial planning is an important element of a couples’ lifetime financial plan and should be considered when they are starting a family.
So, let’s also assume that the decision to make provision has been made 10 years ahead of time, i.e. when their child is 8 years old! This may seem too soon, but one thing we have realised whilst working with clients over the longer term is that time can fly past.
Another important decision would be deciding to seek some financial advice regarding this matter. Even the seemingly simple questions like where to put the regular savings required could have big consequences. If for example a bank account was chosen over a well managed investment portfolio, then the sums needed to be put away each month could be 50% higher. Inflation should also be considered along with factors such as tax, other funds available, possible inheritance and the list goes on.
So, starting from scratch and looking to cover the full cost of university in 10 years time, parents may need to save around £500 per month. At a growth of 6% per annum and with inflation being added to the cost at 3% each year, the final fund value would be around the inflated £80,000 future costs needed. It would also make sense to add a premium to this so that in the event of a parents death, the future plans are protected.
Again, this all falls back to the parents seeking independent financial advice at the least and ideally thinking about their own longer term goals and establishing a financial plan for themselves. At Carlton Smith Private Wealth these are common needs from our clients and is why they seek impartial wealth management advice from us. If these issues are of concern to you, then please do get in touch.