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University challenge

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Three top financial advisers offer their suggestions for parents looking to save for their childrens’ further education.

Getting a university degree is an expensive business these days, and set to get far more pricey next year. According to the Push university guide, the average graduate starting a course in 2011 will leave with debts of £26,100. And for those starting in 2012, after tuition fees at many universities will have trebled to £9,000 a year, the average debt figure is set to double to £53,400, according to the guide.

Such massive debts will have enormous ramifications for young people starting out their adult lives, and may well lead many to question whether going to university is worthwhile.
As a parent, if you are in a financial position to help your children shoulder the expense of university and avoid or minimize debt, what plans should you be making?
Back to basics

Simon Webster, managing director at Facts & Figures Chartered Financial Planners, says that when considering university education you should ask yourself three questions.
1. What will it cost to send a child to university for a year?
2. Can I afford it?
3. Before committing a great deal of hard earned cash, make sure your child is both suited and prepared to do the work to justify the investment.
“In theory a university educated student should command a higher salary in the job market, but in reality a 2/2 in an arts-based subject does not generally impress employers,” he says. In terms of funding, Webster says the trick is to start early; the longer you have to save the less you need to put aside each month.
“As to where you put it, for terms of over five years I would recommend stocks and shares ISAs; put the money on a wrap platform and spread it between a number of fund managers and markets. Seek independent financial advice for the selection.
“If you have a lump sum then ISAs for each partner first and perhaps a unit trust portfolio with the rest. If ISA allowances have been used up a series of maximum investment plans maturing in sequential years required might be an option for a higher rate taxpayer.”
Webster suggests that parents avoid friendly societies they are too expensive even with their bit of tax relief.
“If you have left it too late and you have some equity in your house a further advance may help. Flexible mortgages with a drawdown facility can be helpful.
“Last but by no means least student loans are an attractive way of funding late planners cheaply. Take the student loan and the parents can help pay it off later if they want to.”
A matter of time

Martin Bamford, managing director of Informed Choice, agrees with Webster that planning ahead and starting early is key. “With such a substantial cost to plan for, it makes sense to start saving as early as possible,” he says.
“Saving for a big financial objective becomes more manageable when you give yourself time to save, as the money has longer to grow and the amount you need to save each month is less.
“By giving yourself time, it is possible to save for seemingly massive financial goals without placing too much stress on your current financial needs. Depending on your timescale and attitude towards investment risk, there is a choice to be made between savings and investments.”
Bamford points out that as your child gets closer to starting at university, you should be scaling back the level of risk you are taking with the money, to reduce the potential for volatility at the time the money is needed.
Keep it flexible
Duncan Philp, senior consultant at Macbeth Currie Financial Services, says:

“When advising our clients on saving for university we give advice on the best way forward. It depends on the age of the child and what is the most suitable vehicle for saving depending if it is a capital investment or regular monthly savings.
“We would in the majority of cases recommend a unit trust investing in a portfolio of stocks suitable for the time it will be invested this is whether it is a capital investment or regular monthly savings. We would also look at fixed term bonds and possibly capital protected products through structured products.”
Philp advises that parents keep investments flexible so that there is cash available while the children are at secondary school in case you need to pay for an educational or recreational trip abroad, for example. With many state as well as private schools these days running everything from art history trips to Florence, drama workshops in New York and skiing holidays, school trips can costs thousands of pounds.

Philp also suggests getting grandparents involved and investing lump sums for education if they are in the financial position to do this.
“Parents can also use the method of overpaying a mortgage and then utilising the overpayment if required for education and if not required then they have reduced the mortgage for their own benefit,” he points out.
“We would also look at saving the child allowance for the benefit of the future instead of using it today,” he concludes.

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