School and College Funds

School and College Funds

A Guide to Saving for University fees

What are the costs?

We estimate that when living costs - such as rent, food, clothes, entertainment, books and tuition fees are taken into account - the average cost of a three-year university course (2006) will be in the region of £34,150. The projected cost for the 2006/2007 academic year alone is £10,940 - rising to £11,378 for 2008/2009 and again to £11,833 for 2009/2010. *

You can substantially reduce the costs of sending your child to university by forward planning - the earlier you start to plan the greater the potential cost savings you can achieve. As part of the planning process, you need to consider whether you want to fund the full costs of university and pay them as and when they fall due, or whether you would prefer to allow your child to receive the student tuition and maintenance loans and then repay these loans for them after graduation. The second option might be worth considering if you need more time to accumulate sufficient savings.

* Estimated cost of attending university in the 2006/2007 academic year calculated as
£8,810 (University cost projected in 2005 by NUS for a student studying o/s London in the 2005/2006 academic year), less tuition fees applying in 2005/2006 of £1,175.

Result increased by 4% in line with our projected above inflation costs (CPI of 2% + 1.5% pa premium), plus £3,000 tuition fee applying for 2006/2007, giving £10,940. Result increased thereafter by 4% each year.

So how much do you need to save?

The following scenarios assume a 3 year university course beginning at age 18 with total costs including tuition fees, books, equipment and living expenses of around £10,940 per annum in today’s terms growing by 4% a year, and with savings set aside to fund these costs growing by 6% a year.

Newborn baby (18 years to go until university)

If you are a parent with a newborn baby you will now need to save around £179 per month to cover the expected cost of a three-year university course starting in 18 year’s time.  Alternatively, using the same growth assumptions, investing a lump sum of £22,857 might be sufficient. Either way, early forward planning is likely to result in significant savings compared with an expected outlay of around £69,182 assuming you make no provision at all and pay for the cost of university in 18 years time directly out of earned income.

10 years to go until university

If you have not made any financial provision towards university costs and your child is now 10 years away from starting a three-year course you will either need to save £286 per month, or invest a lump sum of £26,619. This compares with an expected outlay of around £50,551 by paying costs directly out of income in 10 years time.

5 years to go until university

If your child is just 5 years away from starting a three-year course there is still the potential for you to save money on costs, albeit to a much lesser degree than had you begun building your savings earlier. You will now need to save £501 per month or invest a lump sum of £29,279. This compares with an expected outlay of around £41,549 if you were to delay and pay all of the costs out of earned income instead.

Practical planning and things to watch out for

Over the long-term education fees tend to rise faster than the rate of inflation because around one-third of the cost is accounted for by teachers’ and lecturer’s pay. On average, earned income generally outpaces inflation by around 1.5% a year. The cost of salaries could have an even more profound impact on future university costs, because lecturers’ pay is set to increase by between 13.1% and 15.5% over the next three years, with a further pay review then due in the 3rd year - opening up another opportunity for even bigger rises in 2008.

 A strong housing market might mean that students in private accommodation could face above inflation rent increases. Future rises in the maximum student loan facility might not be enough to keep pace with rising rental costs.

Taking time to project the costs you are likely to face in each academic year well in advance is a very worthwhile exercise. It will also help you to identify as early on as possible when university costs are likely to double up where you might have two or more children who could attend university at the same time. It can also highlight years when paying university costs are likely to impact on other plans for the family, such as moving home, paying wedding costs for older children and in some cases funding your own retirement.

Increasing numbers of students are opting to stay on to do postgraduate courses to help potential employers differentiate them from the graduate masses. Between 1994/95 and 2003/04 the number of postgraduates rose by 70% (source – Universities UK). These courses not only represent a full one year’s extra living expenses, but tuition fees are sometimes far higher than for graduate courses - reaching up to £10,000 in some cases.

It is worth bearing in mind that even when the costs of university start to fall due when your child begins his or her course, you may still need to continue setting aside savings, either to meet the costs for future academic years or to help build up savings to pay for younger children’s university education.

Universities that charge the maximum £3,000 a year in tuition fees from September 2006 must provide at least £300 a year in non-repayable financial support for those students who receive the maximum £2,700 maintenance grant, so that the full cost of their course is covered. However, many universities have introduced an additional range of innovative support packages, such as bursaries, that are now available to a larger number of students. So, it will be worthwhile contacting individual universities and colleges to find out what financial help is available.

Few families can afford to save towards both university fees and a deposit for a child’s first home. However, where there’s a choice it’s often more beneficial for you to let your child fund the university fees by taking on the available student loans and for you to continue saving towards the eventual cost of house purchase. Your child will save more money in the long run by having a smaller mortgage. The typical standard variable mortgage interest rate is usually around 2-3 times the interest rate due to be paid on a loan from the Student Loan Company. Funding for a deposit on a house rather than for university costs also gives you longer to build up your savings.

An initial review is offered on a no charge and no obligation basis.