In recent client review meetings, I have been asked about the options for University saving and the impact on the family budget. Having a son currently enjoying his gap year in Japan means this was close to our hearts when originally setting our own plans. With that in mind, I thought this article may be helpful.
With university tuition fees in England now approaching £9,250 per year, many young people are understandably questioning whether higher education is worth the investment.
We have many clients with children asking such questions. Given the importance of education to one’s career prospects (and, therefore, your earning potential) we wanted to offer some practical tips about the financial costs of university:
Is going to university still worth it?
Only you will truly know whether attending university is personally right for you. From a financial point of view, however, we can offer some suggestions to help you decide if it is worth 3+ years of your time.
There is some evidence to suggest that those with an undergraduate degree are paid more than those without one. However, the picture is not completely clear-cut.
The statistics point to certain university degrees offer a higher earning potential than others.
The institution you attend also has a big impact but surely it is more important to find the best university for your child, than just simply the best university
Historical statistics point out that female graduates are also more likely to see a bigger financial benefit from university compared to men. Women with a degree are estimated to earn 28% more than those without. For men with degrees, their earnings are about 8% higher compared to their non-degree counterparts.
Mixed in with all of this, of course, are the costs of going to university. In other words, even if your earning potential is higher with a university degree, is the up-front investment and subsequent debt you need to pay worth it (from a financial perspective)?
You will need to sit down and do some sums for your own particular situation, but here are some suggestions as a general guide.
Firstly, and importantly, remember that you do not start paying back your student loan until you start earning. For instance, if you start a university degree this coming September (2019) then you will only start paying back your loan once you start earning over £25,000 per year. You will then have to pay back 9% of your earnings over this amount.
But do remember that your student debt is wiped after 30 years after you started paying it back. So, if you start repaying it from the age of 25 you will no longer have to do so once you reach age 56.
So, it looks like you should not pay your student loan back early as the debt will eventually be wiped anyway. Try to think of the monthly payments as a kind of “graduate tax” which you pay for having attended university.
In our view, attending university still makes a lot of sense from a financial point of view – despite the student loan repayments you will have to make.
However, this does not mean university is right for everyone. Nor does it mean that there are no other options available to you which could offer even higher earning possibilities or fulfil your life’s ambitions
How much money do I need for university?
There are many factors involved with answering this question, including where in the country you will live whilst you study as well as the length of your course.
You already know that you will be facing tuition fees of up to £9,250 per year if you are a British student studying in England. However, you only start paying that back later – so set this aside in your mind for now. We are concerned with how much/if you need to save beforehand in order to live comfortably whilst at university.
Your main living cost whilst you study will be your rent. When we looked in 2017 it averaged at £125 per week – or £4,875 a year on a 39-week contract. Certain locations such as London, however, present higher rent costs.
Essentially, we are suggesting that parents have honest discussions with their child and more importantly, incorporate it into your family long term financial planning.
If you would like us to help you with this, please do get in touch.
