Menu

Student debt: What you need to know if children are heading to university

Posted on

The summer months are here, and another group of teenagers are eagerly awaiting the results of their A levels to find out if they’ve secured a space at their chosen university. If your child or grandchild is among those hoping to gain a degree over the next few years, it’s a time that’s filled with excitement and proud moments. However, you might be concerned about the level of debt they’re taking on too.

Student debt is often talked about in the media, with graduates now embarking on their career owing huge amounts. But student debt doesn’t work in the same way that other debts, such as personal loans or credit cards, do. As a result, discovering more about student debts can help ease your worries.

How much student debt will they have?

For the 2019/20 academic year, universities can charge up to £9,250 a year for UK students in many parts of the country. With most degrees taking three years to complete, students can expect to graduate with £27,750 of debt for tuition fees alone. For some courses, students can expect to be studying even longer, increasing debt further.

Of course, this only considers the amount paid to the university, there are living costs too. The majority of students see university as an opportunity to gain some independence and move into rented accommodation. Maintenance loans can be applied for to help cover these expenses, the amount received will depend on living circumstance and location:

Full-time student Maintenance loan for 2019/20 academic year
Living at home Up to £7,529
Living away from home, outside London Up to £8,944
Living away from home, in London Up to £11,672

 

Once this is factored in, it’s not surprising that the average graduate in the UK carries more than £50,000 in student debt.

What interest is paid on student debt?  

One of the areas that causes confusion about student debt is how and when interest is added.

Students going to university this year will be part of Plan 2. This means that whilst studying, the interest rate on student loans is the Retail Price Index (RPI) plus 3%. RPI is currently 3.3%, leading to an interest rate of 6.3% being applied. After finishing a university course, the level of interest added will depend on income in the current tax year. Those earning £25,725 or less will have an interest rate that matches RPI. For those earning above this threshold, the interest will be RPI plus 3%.

How is student debt repaid?

The scale of student debt and interest rates graduates are facing can make it seem like further education will harm their financial security. However, the process of paying it back is where student loans differ significantly to other forms of debt.

Repayments only start when graduates earn above a certain salary. For graduates that are part of Plan 2, they only start making repayments when their income exceeds £2,144 per month (£25,725 annually). Repayments are 9% of the income that’s above this amount, which is deducted automatically from paycheques. This means it acts more like an additional tax in many ways.

Spread out into monthly repayments, the amount paid towards a student loan is relatively small. For example, a graduate earning £27,000 would repay just £9.54 per month. If they were to earn a £3,000 rise, taking home an annual salary of £30,000, monthly student loan payments would increase to just over £32 a month.

The way student loan repayments work mean graduates only make repayments when they’re earning above the threshold. If they never earn above this amount, no repayments are required. Should graduates take a career break, to study further or raise a family, for example, repayments will also stop. If the full amount isn’t repaid within 30 years, it’s normally written off.

Should you provide financial support to cover university costs?

Whilst student loans aren’t paid back in the same way the other debt is, you may still want to offer a helping hand financially as your child or grandchild goes through university. Here, there are two important factors to consider: the impact it will have on your finances and how it will help the beneficiary.

  • Considering your finances: Whether you hope to give a one-off lump sum or ongoing support to loved ones heading to university, it’s important to understand how it’ll affect your own financial position. Taking a chunk of money out of your pension, for instance, may leave you financially vulnerable in the future. Taking a step back to fully comprehend the short, medium and long-term effects of your decisions mean you can proceed with confidence.
  • Delivering maximum impact: It’s also important to talk to the student here and understand how your financial help would have an impact on their financial security. For example, would it be better for you to pay a lump sum that will cover tuition fees or offer ongoing support that will help with day-to-day expenses? It’s crucial that you consider both the short and long term here, as well as alternatives. When you look at the bigger picture, you may decide that saving the money intended to help with university for a few years to help them get their foot on the ladder will be more beneficial, for example.

If you’d like to discuss helping younger generations improve their financial security, whether through covering university costs or not, please get in touch. We’re here to help you understand the impact it’ll have on your own finances and the best way to lend a hand.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.






Subscribe to our newsletter