Millions of students across the UK are preparing to head to university and pursue their educational goals. As a parent, you may feel proud as you help them pack up their belongings and move into their own space for the first time. Yet, you might also be worried about how they’ll cope financially or repay the student loans they’re taking out.
Figures from the House of Commons Library show there were 2.86 million students in the UK in 2021/22. Around 550,000 applications were accepted for full-time undergraduate places through UCAS in 2023.
If your child was among them, read on to find out what you need to know about supporting them through university.
The average student will graduate with debt of £43,700
While going to university could broaden career prospects, you might worry about the financial implications of borrowing money to pursue further education.
Many students will take out loans to cover tuition fees, which are a maximum of £9,250 a year in England in 2024/25. With the average course lasting three years, that means graduating with debt of £27,750.
In addition, students may take out a maintenance loan to help with living costs while they study. Rent alone can add up to a substantial amount. Indeed, according to the BBC, in 2023/24, the average student outside of London and Edinburgh paid £7,475 in rent for the academic year.
How much your child can borrow through a maintenance loan will depend on a range of factors, including where they’ll be studying, if they’ll be moving out, and your household income.
Official figures show that the average student going to university in 2024 is expected to graduate with debt of £43,700. The government expects around 65% of these students to repay their student loans in full during their lifetime.
With such a large figure, you may be tempted to offer an alternative to student loans. However, they work differently from traditional loans, so using your money to replace a student loan might not be the best way to support your child.
“Plan 5” students will make student loan repayments once they earn £25,000 a year
The way student loans work often means they can be viewed like a graduate tax rather than a traditional loan.
Students starting university in 2024 will take out “Plan 5” loans, which launched in 2023.
Under a Plan 5 loan, your child won’t need to make repayments until they’re earning £25,000 a year. If after graduating, they’re unemployed or are a low earner, they wouldn’t need to make any student loan repayments. The repayment threshold is frozen until 2027, after this point it’s expected to increase with inflation.
Once your child earns more than £25,000, 9% of their earnings above the threshold will be used to repay their student loan. So, a graduate earning £35,000 would make student loan repayments of £900 a year. If your child hasn’t repaid the loan within 40 years, it is automatically wiped.
For employees, repayments are automatically removed via payroll, just like Income Tax and National Insurance deductions.
Interest is added to the loan at the rate of inflation, as measured by the Retail Prices Index (RPI).
So, while you might be worried about how your child will repay their student loan, it’s manageable for most graduates.
The average student maintenance loan falls short by £582 a month
The rising cost of living has placed pressure on students’ day-to-day finances. As a parent, lending financial support to cover living expenses might prove more useful than covering tuition fees.
According to Save the Student, in 2023, the average student faced a financial shortfall of £582 a month as the maintenance loan they were entitled to didn’t cover their living costs. Indeed, monthly expenses increased by 17% to £1,078 in 2023 when compared to a year earlier.
It means some students had to make difficult choices about where to cut back. The survey found that a fifth of students often skip meals to save money.
With 4 in 5 students worried about how they’ll make ends meet, regular financial support from parents throughout their education could make a huge difference. More than half of students said financial concerns harmed their mental health and 30% stated their grades suffered as a result.
So, if you’re in a position to, you might want to consider how you could help your child manage their budget and ease some of the financial stress they may experience as a student.
Contact us to make supporting your child part of your financial plan
If your child will be going to university soon and you want to update your financial plan to offer them support while they study, please contact us. We’ll work with you to adjust your plan to reflect your short- and long-term priorities.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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