Saving for university: Why your clients need you more than ever

With tuition fees rising, saving for a child’s university expenses has taken on new significance, writes Standard Life International's Ian Searle

From next year, tuition fees at some universities in England, Wales and Scotland will be set at £9,000. Combined with living costs, this means attending university can be an expensive pursuit.

Which, of course, has created a new headache for parents, who will have to work out if they want – or can afford – to contribute to their child’s university costs.

They have to consider saving for the entire cost of their child’s time at university or a partial sum to help pay for an isolated cost such as living expenses.

Alternatively, they may consider letting their child take a student loan and help pay it back when they earn over the new £21,000 threshold, as this could be a more cost-effective solution.

Where the adviser comes in

But that is just a snapshot of the financial decisions parents need to take into consideration when thinking about their child’s further education. And this is where a financial adviser can add real value.

Research by Standard Life suggested more than half of parents potentially underestimate the maximum amount of debt their child could leave university with.

Almost 60% of parents thought the figure would be less than £40,000, but our cautious estimates for a three-year university course starting in 2020 put the figure closer to £55,000, assuming inflation on tuition fees and living costs at 2.5%.

So despite the fact that more than two-fifths (44%) of parents are currently saving, or intend to save, the amount they predict they need is unlikely to fully fund the cost of university.

But helping parents invest the money in the right investment vehicles will help them grow their money, ensuring it reaches the financial objective they set out.

If a parent decides to save for their child’s university fees they will need to choose when and how they want to pass that money to their child.

Again this introduces tax complexities which they might not fully appreciate and, without the help of an adviser, they could make the wrong decision.

Being tax-efficient

Every family’s situation will be different, so there is no definitive answer to the problem. While some parents may have existing savings, investments or anticipated windfalls, which can be used for the costs of their child’s university, others may need to commit to regular savings.

Using the right tax-efficient savings product, such as an ISA or offshore bond, can make savings go a lot further.

The tax benefits combined with the efficiency of compound interest could help grow their savings considerably and make a significant difference to them achieving their financial goals.

Advisers should also consider the role grandparents can play in the process too. If they are keen to contribute to their grandchild’s university costs they can do it in a tax efficient manner.