What will getting a degree cost?
From September 2006, universities in England and Northern Ireland have been able to charge tuition fees of up to £3,000 a year to new students who are beginning their studies. Most universities have signalled their intention to charge the maximum. (Source: NUS Online 2006)
Fidelity Investments suggests that the costs of the same three-year course when the current generation of new born babies is ready to go to university will have risen to £48,755. (Source: Fidelity Investments 04/04/2005)
And that's just the average. Educational qualifications for the professions and specialist academies for sports, art or drama can be even more expensive. Most professions require longer training periods, sometimes up to seven years, adding considerably to the cost. If you feel your child might be the next British winner at Wimbledon, you'd better be prepared to dig deep into your pocket. Sending them to a tennis academy in Florida could cost around £40,000 a year. (Source: Prudential September 2004)
The number of students in higher education is set to reach 1,435,665 in 2006-07, according to the Higher Education Funding Council. (Source: Higher Education Funding Council January 2006) The forecast increase in all higher education student numbers from 2004-05 to 2008-09 is predicted to be 10.5%. .New entrants into higher education in the 2003-04 academic year reached 269,000, up by 9.3% in the last five years. (Source: National Statistics 14/04/2005)
The government has said that it wants to ensure that half of all 30-year olds have had the opportunity to benefit from higher education by 2010. (Source: Prudential September 2004) This is, on the face of it, an admirable goal. However, the reality of the situation is that if you decide that you or your children want to get a degree, it is going to cost a lot of money.
The cost of getting a university education has risen dramatically over the last decade, with maintenance grants whittled away and students expected to pay their own way with the help of student loans. The National Union of Students has estimated that over the 2005-06 academic year, the average student outside London will rack up a debt of £5,664 while those in London will be £6,612 in the red. (Source: NUS Online - 2006)
What help is available with funding a degree course?
From September 2006, no full-time undergraduate will be required to pay fees during their course. Universities may charge up to £3,000 a year but any increase in fees is pegged to below the rate of inflation until 2010 at the earliest. Those from lower income households may be eligible for a non-repayable maintenance grant of up to £2,700 a year.
The maximum amount of loan available to cover living costs through the Student Loan Company in 2006-07 is £3,415 for those living at home, £4,405 for those living away from home and £6,170 for those away from home at a course in London. Up to 75% of the maximum is available to all eligible students regardless of other income.
In addition to student loans, those entering higher education may be eligible for a variety of other assistance including bursaries from the colleges and universities, and benefits, such as parents learning allowance, child tax credit, etc., depending on their circumstances.
For students who start their courses in September 2006, the government will write off any student loan balances (but no arrears) that remain unpaid 25 years after the liability to repay commences (April after the course finishes). This covers both loans for fees and loans for maintenance.
For more information on the help available, contact your local education authority or the Department for Education & Skills helpline 0800 731 9133 ( www.dfes.gov.uk/studentsupport ). You may get in touch with the Student Loans Company on 08456 077577 ( www.studentsupportdirect.co.uk ). Those looking to go to university in Scotland should contact the Student Awards Agency for Scotland on 0845 111 1711 ( www.student-support-saas.gov.uk ).
How much will private schooling cost?
Before you and your offspring contemplate higher education, you may be considering private schooling. In January 2005, there were 611,560 children attending private schools out of a school-age population of 8.275m pupils, 7.4%, a proportion that has remained little changed since the mid-1990s although there has been a rise in the absolute number of pupils. (Source: Department for Education and Skills, October 2005)
Basic fees vary widely, depending on whether schools are educating younger or older children, day or boarding and where they are situated. The Independent Schools Council offered the following estimates of fee ranges per school term as at September 2004: (Source: Independent Schools Council website)
Pre-Prep (age 2-7) £1000 to £1500
Junior/Prep (age 7-13) £1750 to £3500 (Day)
£3400 to ~£5250 (Boarding)
Senior (age 11/13-18) £2400 to £3600 Girls' day
£4050 to £6800 Girls' boarding
£2500 to £4500 Boys' day
£4700 to £7200 Boys' boarding
Extras can also add considerably to the bill (perhaps another 10%), depending largely on activities in which your child chooses to take part (such as instrumental tuition, school trips).
School fees usually rise well-above the rate of inflation and most schools increase them once a year. Anyone thinking of putting a child through the private school system should be aware of how compound inflation takes its toll on costs. For example, a school fee of £3,000 a year will cost £6,000 a year in ten years' time if the fee rises at an annual rate of just 7%. In the academic year 2005-06, fees rose by an average 5.7%, the lowest annual increase since 1999 although still three times the prevailing rate of inflation (Source: BBC Online 09/05/06); fees for the academic year 2003-2004 had risen by an average 9.6% (Source: Observer 26/09/2004).
Is independent education right for my child?
This is of course a personal decision, which also depends upon your ability to pay. It has been estimated that around 40% of the parents paying for private schooling were themselves educated in the state sector. (Source: Observer 26/09/2004) Leaving aside any philosophical issues about the merits of state and private education, you will surely not be willing to disrupt your child’s education midway through a vital stage. You should, therefore, be clear that you are committing yourself to paying fees for perhaps several years.
You will need to decide from what age you would like your child educated independently and whether he or she is to be a day pupil or a boarder. As demand for places can be very high, especially in the primary age range, you should register your child at the schools you have in mind at the earliest opportunity - and that could mean from before birth in some cases.
For more information about private schools it may help to get in touch with the Independent Schools Council, which represents schools educating more than 80% of the children in the private sector.
Independent Schools Council, St Vincent House, 30 Orange Street, London WC2H 7HH
Tel: 020 7766 7070, Fax: 020 7766 7071
How do I start planning to pay for education?
While the onus of paying for a university education is put mainly on the person receiving the education, many undergraduates are assisted by their parents through their course. Indeed, many parents help out in order to reduce the debt burden their son or daughter faces on graduation.
You may also wish to investigate whether your children may be eligible for scholarships, bursaries or even assistance from charitable trusts. However, whether you are planning for university or for private schooling you need to consider the following points:
- How long do you have before the first fees are due?
- How many children do you plan to pay for?
- How much are the fees and by how much will they go up?
- What is your potential income and assets, including any possible inheritance?
- What level of risk are you prepared to take with investments?
- Can you invest a lump sum or will you save on a monthly basis?
- What is your tax status now and how may it change in future?
- What impact will inflation have?
It may all sound a daunting prospect. It can be. You should appreciate from the outset that if you are planning on privately educating a child from pre-school to A-level you will have no change out of more than £100,000. However, you have a variety of options, depending partly on how long you have before you intend to start paying fees. You should take independent financial advice on the style and type of investment most appropriate to your current circumstances and your future requirements.
Does it make sense to become a student landlord?
After tuition fees the biggest item on a student’s list of expenses is not alcohol but accommodation. For most this means renting. However, rather than rack up debts on rent for three (or more) years, you and your children may want to consider going into the property business yourselves. Buying a property where your offspring can live with their friends while at university will give your kid/s somewhere to live, offer them rental income to provide a spending allowance and, maybe, turn out to be a sound investment.
However, before you rush out and purchase a property you should consider the tax implications. As a homeowner you will be benefiting from main residence relief. It means that any gain in price of your sole or principle domestic residence (your home) is free of capital gains tax. Unfortunately, the taxman’s largesse won’t extend to exempting any second property if you purchase it in your name. Do that and any capital gain you see in value when you come to sell it after, say, three or four years will be potentially liable for capital gains tax (CGT).
Instead consider a capital appreciation loan. The property is purchased by your child and it is his/her name that appears on the title deeds. This means that they will qualify for main residence exemption because the owner is living in the property. Your contribution is a loan secured against the property structured in such a way that you will share in any capital appreciation. Charge no interest on the loan and youll pay no income tax and because it is a primary debt between you and your child, you wont have to pay CGT on the increase in value.
Such a financial arrangement also protects you from your child selling the property and doing a bunk with the money (perish the thought). If a further mortgage is needed on the property itself, that could be in your son or daughters name with you standing as guarantor. Because the property would be in their name, your child also stands to benefit from rent-a-room relief against the first £4,250 of any rental income from sharers. Anything above this would be taxable as their income, offset against their personal allowance.
You would probably have to help your child fill in a tax return; you may need to keep an eye on tenants and certainly make sure proper contracts are drawn up. You will probably end up helping to maintain the property and you also need to consider how to look after it during vacations when it will most likely be vacant. Do remember to take independent financial advice.
What help can I get from family members?
It is very tax-efficient if a gift is made to a minor (a child) by someone other then the parent - and the money is then invested. If the parent makes a gift and the resulting interest exceeds £100 in the tax year, it will all be taxed as if it were belonging to the parents. Alternatively, if the gift is made by anyone else, full advantage can be taken of the child's personal tax allowance.
Grandparents who are willing to help out financially may be able to make inheritance tax savings in the process. Those who pay all or part of the school fees on a regular basis from their income can do so without incurring an inheritance tax (IHT) bill on the money - as long as the loss of this money does not affect their lifestyle or force them to dip into savings.
They may also make use of their annual IHT exemptions, which means each person can give away up to £3,000 a year without attracting a tax charge. They may also give away any amount without inheritance tax implications, as long as they survive the gift by another seven years. If they die earlier, the gifts will attract tax at 40%, subject to taper relief, if, once they are added back into the estate, they push the value over the IHT nil rate threshold (£285,000 for 2006-07).
Planning further ahead for university, for children born after 31 August 2002, using a Child Trust Fund to build up a fees nest egg for your offspring also allows anyone, whether or not a family member to contribute to the tax-free account, up to the maximum annual contribution of £1,200.
Do I need special insurance to cover fees?
Parents who are funding school fees out of income would be wise to consider taking on a term life assurance plan for long enough to cover the school years in the event of the death of the main earner.
There are, in fact, specific, school-fee payment protection schemes available. You may wish to consider one of these schemes. Although they are likely to be more expensive than straightforward term assurance, many of them do also reimburse fees if the child is ill and off school for more than a couple of days.
Taking out insurance to cover the school fees will allow you the peace of mind that comes with knowing that, should the worst happen, your childs education will not be disrupted as well.
What kind of investment should I be looking for?
There are literally thousands of potential investments to choose from, ranging from the very secure to the extremely speculative. Most families cannot afford and do not wish to gamble with their children's future education and so any investment aimed at paying educational fees should not be unduly risky. The investments selected should be appropriate and pay regard to the duration of time before initial encashment is needed.
It is essential that the investments selected offer the maximum tax-efficiency. Choosing the wrong ones could mean that you pay tax unnecessarily or that you pay too much tax on the proceeds. Wherever possible, advantage should be taken of the fact that husbands and wives are taxed as separate individuals. And remember, each member of the family will be entitled to tax allowances and exemptions. The investments should be chosen according to their own particular tax treatment, as well as the present and anticipated tax position of the investment owner.
It is worth remembering that Investment schemes that are described specifically as school fee plans are governed by the Financial Services Authority alongside more general investments.
If you have a lump sum you can devote to fees, you have various choices over what to do with it. You could opt to buy a school fees composition plan from your child's school, which guarantees a certain level of fees will be covered for the whole of the school career. Not all schools will offer this because of the administrative hassle.
However, if your school does, be aware such plans currently enjoy charitable status and so benefit from certain tax advantages, although these could be removed by a future government which could simply make a change in legislation. There is a far wider choice of investments which are not directly linked to education and, therefore, offer more flexibility - allowing you to spend the money as you wish.
What do I do if I have no time left in which to save and invest?
If you find yourself in the same boat as more than a third of parents with children in private school, you will be paying school fees, not out of savings and investments but out of earned income and, increasingly, debt.
Short of remortgaging your property, the lowest rate of interest you are likely to achieve on a substantial loan to assist with school fees is still going to be through a secured loan or second mortgage. However, you may find this useful if you can arrange a draw-down facility whereby you only actually borrow the money as and when you need to do so. Do bear in mind that if you default, your lender may repossess your home.
If you have embarked on paying for education without financial assistance of any sort and without any forward planning and saving then you should probably get used to the idea of cheap second-hand cars and holidays at home for the duration of the school years.
Source: Moneyextra
