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Could this week’s reshuffle mean lower university fees? And how to save if it doesn’t

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12/01/2018
In this week's reshuffle, it is noteworthy that the two biggest scalps were Justine Greening and Jo Johnson, both of whom were said to oppose changes to university tuition fees.

This may be good news for prospective students, but in the meantime they still have to find £9,250 per year to fund their tuition. A university education has moved from being a rite of passage, to a serious long-term financial commitment.

At the same time, students will also need to find accommodation and fund living expenses, which could double the tuition fee costs. Those parents who would rather their children did not start life with a fistful of debt need a plan. Certainly, there are bursaries and scholarships, but for the unlucky majority, prolonging education is an expensive business.

The key message for parents is that the sooner you start, the less it will hurt. The powerful effect of compounding should not be underestimated. £150 per month over 18 years at an average growth rate of 5% will give you a tidy £52,380 to spend on your children’s university education. £300 per month over 10 years at the same growth rate will give you £46,584, taking a greater chunk out of your monthly income in the interim.

Saving tax where possible is also a key advantage, again because of the magical compounding effect. If you can boost your returns by 20% or even 40% per year, that will add a lot back into the pot. So if you do not invest your maximum into ISAs each year already, this is the ideal way to create a long-term tax free income stream to pay university fees. Investors generally have a longer time horizon, so can afford to take more risk with the underlying investments – possibly through an equity income fund. This will pay a steady income, but also help protect against inflation, a peril of long-term saving.

The other option is to look at using a pension for university saving. Pensions can be taken from 55 and the 25% tax-free lump sum allowance should cover the tuition fees at least. However, unless you are hoping that your child will appreciate your generosity to the extent that they will keep you in your old age – optimistic at best – it is worth ensuring that you have alternative retirement provision if you take this route.

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