With many students starting or returning to university this month, many parents will be considering whether a degree is an affordable aspiration for their children. There are increasing questions around how you fund a degree.
While tuition fees for undergraduate students haven’t risen since 2017 (they’re currently frozen at £9,250 a year), this is still a huge chunk of debt for a student to take on.
This doesn’t factor in living costs, which have increased by more than 8% since the 2022-23 academic year, according to a student housing survey1. In some cases, the increases are significantly higher, up by as much as 27%. The report also found that university maintenance loans (loans provided by the government’s Student Finance England for general living costs) are failing to keep pace with rising rents.
While graduates will not necessarily repay their student loan, and only have to make payments when their income is above a certain level, the idea of accumulating debt so early on is understandably unappealing2.
So, how much might you need to save for university? We’ll take a look at the costs below, and some key considerations if your children are thinking about higher education.
How much does a university education cost?
Tuition fees quickly mount up for undergraduates, with a typical three-year degree costing £27,750. Factor in interest, and many people are already £30,000 in debt by the time they have taken their final exam3.
If you apply for a maintenance loan to cover your living costs, the debt can run up even higher. A student living away from home at a non-London university can borrow up to £10,227 a year4, equating to £30,681 over the course of a degree. For a London university, the figures are £13,348 and £40,044, respectively.
All in, a graduate who takes out the maximum for both tuition and maintenance loans can expect to end up around £60,000 in debt if they attend a non-London university, rising to £70,000 if they go to a London university.
On the plus side, they may not have to repay all of that. For the academic year 2024-25, graduates pay 9% of their earnings above £25,000 back in student loans5, with the debt wiped after 40 years. According to the UK government’s forecasts, 35% of students who started in 2023-24 will not repay their loan in full6.
How can you save for university?
Despite the possibility of not having to repay a student loan in full, many parents have an instinctive reaction against their children taking on so much debt so early in life.
Many therefore look to set aside money ahead of time, potentially with the help of other family members such as grandparents. Junior ISAs (JISAs) are ideal in this respect, offering a tax-efficient way to invest up to £9,000 for the 2024-25 tax year.
While anyone can put money in, only the parents or legal guardians of a child can open one.
The downside to a Junior ISA is that the assets legally belong to the child. That means they can choose to spend the JISA assets on whatever they like once they turn 18. This puts many parents off.
An alternative option is for parents to invest through their own individual savings accounts (ISAs), although grandparents and other family members can’t contribute to the parents’ ISAs.
How much could you build up in a Junior ISA?
Few people will be able to set aside £9,000 each year, particularly if they have more than one child.
Our chart below shows a potentially more realistic example. The investor starts with an initial £1,000 investment and begins investing £100 a month, increasing that amount by 2% a year to take into account inflation. We’ve assumed investment growth of 5% a year after fees, compounded monthly . After 10 years, their pot is worth just over £18,500.
Investing over 10 years
Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5% after fees.
Source: Vanguard.
If you’re really organised, you could start saving from birth. Using the same assumptions as above, but with an investment time period of 18 years, a pot for university savings could amount to just shy of £43,000.
Investing over 18 years
Notes: This hypothetical scenario is for illustrative purposes only and doesn’t represent a particular investment or its expected returns. It assumes annual returns of 5% after fees.
Source: Vanguard.
Either scenario could make a big difference to someone’s university experience, helping to fund tuition costs or, in the case of the larger savings pots, funding tuition and helping with living expenses over three years.
If there are any savings remaining after graduation, they could be earmarked for future goals such as a house deposit.
So, should I save for university costs?
Ultimately, there are a lot of different factors to consider when saving for university.
Because student loans are written off after 40 years, there is no guarantee that a student will be better off not taking out a loan (or vice versa).
But having a pool of savings will help to give someone flexibility, whether that’s enabling them to concentrate on their studies and not take a part-time job, or perhaps allowing them to pursue a postgraduate degree or further professional studies, or a completely different goal.
1 Cushman & Wakefield UK Student Accommodation Report.
2 For an overview of what undergraduates are entitled to, see the gov.uk website. The student loan system provides an overview of the terms and conditions when taking out a student loan.
3 Figures based on tuition fees of £9,250 a year for a three-year course, together with interest at 4.3% per annum.
4 Student Maintenance Loans 2024, Save the Student. 5 September 2024. Undergraduates who come from a household with an income above £70,098 are only entitled to a maximum of £4,767 if living outside of London, or £6,647 if living in London, for 2024-25.
5 For a plan 5 student loan. See here for all repayment plans and figures.
6 See the UK government website for further details. Information sourced July 2024.
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The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
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