Record numbers of students are expected to head to university this year. Universities expect a drop in demand from overseas students owing to the pandemic, so they will be desperate to fill the empty places with British school leavers. But with higher education now costing around £55,000, is it worth it? And what’s the best way to pay for it?
Research by the Department of Education has found that the average graduate earns £9,000 a year more than a non-graduate. The Institute for Fiscal Studies (IFS) believes that over his working life a man “would be £130,000 better off on average by going to university after taxes, student loan repayments and foregone earnings are taken into account”, says Sam Benstead in The Daily Telegraph. Female graduates are estimated to be £100,000 better off.
Just be sure to choose the right course. The IFS research found that a degree in languages or creative arts had no financial benefit after graduates paid their debts, but a degree in law, economics or medicine can bring in over £250,000 over a lifetime. As for footing the bill, a student loan can cover the tuition fees, while a maintenance loan of up to £12,010 a year can help with living costs. The maintenance loan is means-tested, with the amount available reduced on a sliding scale for households (parents in most cases) earning more than £25,000 a year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
These loans carry interest rates of RPI (the Retail Price Index gauge of inflation) plus 3%, which is applied from when your first loan starts. Repayments don’t begin until the April after graduation and are set at 9% of income. But graduates don’t have to start repaying their loans until they earn at least £26,575, and any debt remaining after 30 years is written off. There are also grants and bursaries available, so make sure you check with the university to see what your child might be eligible for.
Subsidise their mortgage instead
It can be tempting for parents who can afford it to pay those costs to prevent their children getting into debt. But you may find there are more effective ways to bolster your children’s finances.
Many students never pay their debt back and those who do make repayments rarely pay off the full amount: research by the House of Commons found that just 30% of graduates do so. “The price tag of university is mostly irrelevant,” says Martin Lewis in The Daily Telegraph. “What matters in practical terms is how much you have to repay – and that’s a completely separate number from the total amount of tuition fees, maintenance loan and interest.” Lewis has calculated that even someone with a starting salary of £50,000 would not pay back their full loan.
Remember too that a student loan can be paid off in full at any time, so don’t be tempted to pay it too fast. “Waiting will allow you to see if your child wants to go on to further study,” says Charles Calkin in the Financial Times. “If they do a master’s degree the likelihood of their paying off the debt becomes even more remote.”
Calkin gives the example of giving a graduate the money for a house instead. His calculations found that a £50,000 reduction on the average mortgage would save £204 a month. A graduate would have to be earning more than £53,885 a year before their monthly student loan repayments hit £204.
-
Tesla earnings: live preview and analysisCan the electric car-maker overcome a big deliveries miss ahead of earnings?
-
Can I shield my ISAs from inheritance tax?Many investors and savers will be wondering if there’s anything they can do to protect their ISAs from inheritance tax, especially as pensions will become liable for the levy from April 2027. We reveal the options available to ISA customers
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
What MoneyWeek writers read and watched in 2024Here's a roundup of MoneyWeek's favourite books, films and TV shows in 2024
-
Parents face £1,000 'nanny tax' – how to afford itHiring a nanny is about to become even more of an expensive hassle for families, especially those in London. Here's how to cut costs
-
Is it cheaper to be a sole trader?It might be cheaper to be a sole trader due to changes to the tax system
-
The best fintech apps on the marketFrom digital banking to investment platforms, here are the top fintech apps on the market right now, according to David C. Stevenson
-
What pension providers don't tell you about your retirement moneyCheck the small print from your pension provider or risk losing thousands.
-
Britain’s stifling tax burdenChancellor Jeremy Hunt's Autumn Statement will see the tax burden rise in each of the next 5 years.
-
Brace for a year of tax risesThe government is strapped for cash, so prepare for tax rises. But it’s unlikely to be able to squeeze much more out of us.
