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Point of View

The escalating cost of further education

By Colin Haywood, Wealth Planning Director

Last week saw many students celebrating (and commiserating) the arrival of their A-Level results. Assuming they got the grades they were looking for, many will now be considering their options for further education. Few of us would argue against the value of higher education, but with the cost of tuition fees soaring (the maximums were trebled back in 2012), parents and students are being forced to think twice before assuming university is the next best step.

Unless you’re Scottish, and planning to study in Scotland, the annual cost of tuition fees is more than £9,000 a year[1] , meaning students will have to find nearly £30,000 to see them through the average three-year course. And that doesn’t include residential fees, the cost of learning materials, and other university expenses. In fact, according to the Institute of Fiscal Studies, self-funding students in England are likely to graduate with average debts of a staggering £50,8002.
Thinking ahead and saving for the cost of further education could arguably be the best start you could give your child in adulthood – especially if that cost proves to be £50,000 per student. Here are some ideas on how you can go about it:

Junior ISA
You can currently save up to £4,128 a year into a Junior ISA, which your child can then access when they are 18 years old. At the moment, the best interest rate on the market is 3.25%3. Assuming you save for 10 years, achieving that rate of interest, you will have saved £49,427 - enough to cover the fees, and more at today’s rates. The obvious benefit of an ISA over any other form of savings, is that it’s tax free. You can also invest within stocks and shares within a Junior ISA to potential achieve longer term returns given University may be several years in the future.
 
Gifting from grandparents
There are different ways that grandparents can help towards university fees. They are entitled to gift up to £3,000 each year, inheritance tax (IHT) free, which could then be placed into a savings account or investment (including a Junior ISA). They could also make a larger lump sum contribution, but if they die within seven years of making the gift, it may be liable for IHT. Grandparents can also use a trust to gift money, which gives them the control over how the money is spent, and can also potentially lessen their IHT liability. This is a complex solution though, and professional advice is essential.
 
Plan to use your pension tax-free lump sum
It makes a great deal of sense to maximise your pension savings now, with the view to potentially using some of it to fund tuition fees in the future. Not only is it a tax-efficient way to save, you currently have the freedom to access those savings when you turn 55 years old, and you’re entitled to take the first 25% of those savings tax free. You would need a pension pot of at least £200,000 to give you a tax-free lump sum of £50,000, although that doesn’t account for how much you will need to live on in retirement, and you should seek advice to ensure you don’t run out of money. 
 
Investing for growth
There are many ways to invest for growth, such as a stocks and shares ISA, or a bespoke investment portfolio. You could even invest in property. While such investments can produce better longer term returns than a savings account, it is always best to approach them with a medium to longer term view, such as a five to ten year investment.
 
Financial advisers such as myself can help people achieve their longer term savings goals, and we’re finding that funding education for children and grandchildren is a key priority for many of our clients. The sooner you start putting plans in place to fund such expenses, the better, as these costs could escalate further over the next few years.
 
[1] Source: www.ucas.com/ucas/undergraduate/finance-and-support/undergraduate-tuition-fees-and-student-loans
[2] Source: www.ifs.org.uk/publications/9334
[3] Source: www.moneysavingexpert.com/savings/junior-isa#bestbuy, as at 10th July 2017
 

Please note: Tax laws and HMRC interpretation of them are subject to change.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.