Financing your child’s higher education: a parent’s guide

The majority of parents usually want to contribute in some way to the cost of their children’s university career. According to NatWest research, two thirds of parents provide some sort of financial contribution to their children’s higher education. This ranges massively - from parents who support their children totally through university, paying rent, fees and living expenses, to others who occasionally help out with some necessary equipment such as a computer or books. But knowing what to give and how to do it is difficult for parents. Is there a correct amount? What are parents expected to provide? Which way of giving is most beneficial to the student?

Due to the way the Student Finance package works, every parent that can afford to do so is expected to contribute financially to their child’s higher education. This is because there are three elements in the package for those starting university in 2007: the Tuition Fees Loan, which isn’t means-tested, the Maintenance Grant, which is means-tested, and the maintenance loan – partially means-tested.

The maximum maintenance grant is £2,765, and students will be assessed on their parents’ income. Where the household income is £17,910 or less the student will receive the full grant and where the household income is above £38,805 the student will receive no grant.

This means unless your child is getting the full grant, you are expected to help him or her financially.

The loan available to your child depends on his or her livings circumstances at university. However, once again you’re sometimes expected to contribute. Any assessed parental contribution is deducted from the Maintenance Loan once household income is in excess of £38,805.

“If you have the financial ability to provide 100% support I would advise allowing funds for the child to survive comfortably but with a need to budget."

Roger Williams, for example, is an independent financial adviser, whose two children graduated from Oxford and Warwick in 2005 and 2006 respectively. He decided he didn’t want his sons to graduate with debt, and, since he had been saving for their education since they were born, he could afford to make sure this didn’t happen. Therefore he gave his children more than is typical, at around £80 a week, and also paid their tuition fees. The other money covered most of his sons’ rent and general living expenses. It isn’t uncommon for parents who haven’t saved to remortgage to be able to support their child to a similar degree.

At the other end of the scale, Sarah Whiting is a second year Business student at Oxford Brookes, whose parents are teachers. She funds her lifestyle predominately through a part-time job, getting a very limited amount of financial support from her parents.

Both families are very typical in how they manage the cost of university. The most common methods by which students pay for their studies are working (52%) and parental contribution (50%), according to Halifax research.

The debt question

As well as income, attitude is probably the most influential factor on what parents contribute to their children’s higher education.
Williams for example says he is ‘vehemently opposed’ to people leaving university with debt. Many feel the same – that graduating being saddled with debt of anything up to £20,000 can form dangerously blasé attitudes towards debt. Says Williams: “I believe there is a danger that it will instil in the child the culture of funding living expenses through borrowings.”

For this reason, being able to afford it, he provided enough financial assistance to his two children at university to mean they didn’t have to rely on student loans. If you’re in this fortunate position, it can be a good idea to ensure your child still has to watch the cash, and therefore learn financial management. Williams recommends: “If you have the financial ability to provide 100% support I would advise allowing sufficient funds for the child to survive comfortably but with a need to budget.”

Other parents who could equally afford such measures, reject them. Some believe that taking on debt, then paying it off in an affordable manner through the Student Loans Company, does in fact instil good practices of money management. And, as company director Gerry David, whose daughter recently graduated with a Music degree and a PGCE from Liverpool, puts it, “provided the debt’s not too excessive, they should be able to more than recoup the debt through better job opportunities and higher earning ability.” He helped this debt remain manageable by providing around £2000 a year to his daughter, most of which went on rent, but some of it on an ‘as needed basis’.

In reality, student loans are affordable, and are paid back gradually only when the graduate is earning more than £15,000. And the interest only stays at the same level as inflation. So, whereas in the days of grants, it was extremely unusual to have such huge debts leaving university, a huge 72% of this year’s intake expect to graduate with debt, according to research from NatWest, and Halifax research has indicated that 30% of the current student population are more than £10,000 in debt.

The fact that debt is such a normal part of life now for the vast majority of students means if you can afford to fund your child’s university experience without them getting into debt, you have to make a personal decision based what you think is best for your family.

Some of this debt will come from an overdraft. Your child will open a student bank account when they start university, which will have an interest-free overdraft facility. According to Halifax research, half of students say they are currently overdrawn, and 33% are overdrawn by £1250 or more. The average overdraft is £951.60, but third years are usually substantially more overdrawn than first years.

Credit cards

Student loans and graduate accounts are one thing. Credit cards are another. Of today’s students, 43% have a credit card, according to Halifax’s Credit Card Survey, so it’s quite likely your child might own one at university, if they don’t already.
Many parents are understandably very wary of their children accruing credit card debt, simply because of the high amount of interest. One student who graduated in 2005 has been paying the minimum payment on her £2000 credit card bill, racked up in the three years at university, ever since. Not only is this costing a small fortune in interest, but also it’s not doing wonders for her credit rating.

However, reassuringly, almost half of students with credit cards have less than £500 on their plastic, and the average amount is a relatively manageable £777.80

If your child is relying on credit cards to get him or her through university, it might be worth helping them sort out their budget. With student loans and overdrafts, credit cards aren’t usually necessary, especially if you’re contributing too. But if your child is over the age of 18 and uses credit cards to live a more extravagant lifestyle, there’s usually not much you can do to stop them, except warn them of the costs of credit card debt when they’re in their first full time job.