For many parents of teenagers – and many teenagers themselves – one of the hottest topics of conversation is the cost of higher education. Many people see it as a burden of debt that their children will be paying off for years to come. However, at Grosvenor Wealth Management, we believe that with careful financial planning tailored to your individual circumstances, the cost of supporting your children or grandchildren through university should not be a worry.
Understanding student loans
Student loans are loans from the government to help any student cover the initial costs of going to university. There are two types of loan:
Tuition fee loans
These loans cover the tuition fees that universities charge for their courses and are available to all UK students. They are designed to cover the full tuition fee and are paid directly to the student’s university.
Maintenance fee loans
The second type of loan is there to support students with their everyday living costs while at university. The amount of the loan is determined based on your family’s household income (but not your outgoings). This means that if you have a large household income, the loan will be lower, because the Student Loan Company believes you have the means to support your child. Any loan is paid directly into the student’s bank account in three instalments a year – once per academic term.
To many parents, student debt is a mystery. Newspaper headlines claiming your children will leave university with debts of up to £50,000 can be frightening. But these figures are mostly meaningless, because, although this can be the cost of studying for a degree, what really matters is how much your child will have to pay back.
The amount any student eventually repays will depend on how much they earn after they graduate. This means some students who earn a lot will pay back most, if not all, of their loan, while others who earn very little after university may pay back nothing at all. For the 2021/22 tax year, your child will pay back 9% of everything they earn over £27,295 a year. These repayments start in the April after they leave university and are taken each month. So, if they get a £30,000 a year job, they will pay back 9% of £2,705 a year, or £20.29 a month.
As you can see, if you are hoping to support your children through university, there are many different costs that you need to consider. Even with the support of a student maintenance loan, you will probably still need to give them financial support for rent, food and clothes. And, of course, they will also want some money to enjoy a social life.
The earlier you can start thinking about how you are going to support them, the better. At Grosvenor Wealth Management, we can help you to plan ahead, so you have the available funds to support your children when they need it. Our independent financial advisers (IFAs) are used to working with clients who have a variety of financial needs. Using our financial life planning approach, they will help you to assess all your savings, investments, incomings and outgoings, to create an achievable roadmap that meet you and your children’s needs.
At the same time, we can also sit down with your children at the appropriate time, to help them understand the importance of managing their finances at university. With your support, we can even help them create their own financial plan. By identifying the amount of money they will need each year to support their education, as well as what they may need after university, we will enable them to become financially independent.