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‘College funds’ worth tens of thousands now “essential” for children from middle-income families

18th September 2017 Print

Aspirant parents who want their children to go to university may need to start building a ‘college fund’ now or their child may not be able to afford a university education, according to NFU Mutual.

Means testing of the Student Maintenance Loan, introduced last September for students in England, means that children from all but the lowest income households won’t be able to borrow all they need to get by. This year’s shortfall alone will top £5,500 for some students. 

Unprepared parents could be forced to consider unsecured loans to make up the shortfall themselves to allow their kids the chance to fulfil their potential.

Sean McCann, chartered financial planner at NFU Mutual, commented: “If mum and dad expect their kids to borrow to fund the full cost of their university course, they’ll be in for a shock.  

“Many parents have come to terms with the fact that if their children attend university, they are likely to graduate with an enormous debt. However, some won’t yet realise the size of the financial burden they will have to take on to meet their child’s living costs.

“The US concept of the ‘college fund’ must now be an essential part of family finances in the UK if university is a realistic ambition. Even now, two parents on average salaries could need to fork out more than ten thousand pounds between them to top up the maintenance loan over a standard three-year undergraduate course. 

“We’re in a situation where middle-income parents with young children will have to start planning in earnest. Those with several bright kids are likely to have an even greater financial burden.”

This September some students will be able to borrow £5,500 per year more than others to pay for living costs. Students coming from households with an income of more than £25,000 won’t be able to borrow the full amount, potentially pricing them out of a university education. 

Sean continued: “The maintenance loan is there to help pay for the basics such as student accomodation and food. The means test prevents most students from borrowing the full amount. And, while the guidelines aren’t explicit, basing the test on household income means that the bank of mum and dad will have to make up the shortfall. 

“Most people will look to an ISA to build up a nest egg and some might want to consider investing in stocks and shares if they have five or more years to invest. However, Junior ISAs are not necessarily the answer as the child will have full access on their 18th birthday and that could become an unavoidable distraction ahead of A-levels.  

“As some people have children later than others, there will be a number of parents who may be able to access their pension pot by the time their child starts further education. At the moment, pensions are one of the most tax efficient way to invest money – particularly for higher earners.”