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The benefits of education

More than one in three school-leavers now goes on to university. But state financial help for students and parents is much less than it used to be. With a few exceptions – such as assistance for undergraduates who are disabled or children of single parents – student grants are now history.

Their replacements – student loans – have to be repaid, starting when the former student is working and earning at least £10,000 a year. The amount of the outstanding loan increases in line with the retail price index. There are limits on the amounts that can be borrowed in each academic year, depending on whether students live at home or away.

Then there are tuition fees, which are also means-tested, the actual contribution depen-ding on the circumstances of the parents. For students studying in England, Wales, and Northern Ireland fees are up to £1,075 for the 2000/01 academic year. Only students whose parents&#39 joint residual income is less than £20,000 a year will not pay any fees.

Many students try to fund themselves through higher education by working part-time. But there are some very worrying statistics featured on the NUS website which suggest that, of students working during term time, 66 per cent found work affected their studies, 30 per cent missed lectures and 20 per cent failed to submit course work.

While many of your clients would like, or expect, their child to go on to university, how many have considered how they are going to fund it? Many will have no idea of the scale of the problem.

They may not hesitate to consult an IFA before taking on a major financial commitment such as a mortgage but many would not dream of asking about how to fund their child&#39s higher education. The comparison may seem extreme but those with two children could easily be looking at a similar financial commitment as a mortgage – look at the figures below.

The table at the bottom of the column will give you an idea of how much might be needed to cover tuition fees and living expenses in the future – assuming a child will start a three-year course at 18.

At least those with 10 or more years to go before their son or daughter reaches the typical age for university entry of 18 or 19 have sufficient time to plan ahead. By putting money aside each month over that period, they could build up a substantial fund for their child to draw on when the time comes.

Why not suggest to your clients that they use state benefits to help towards funding higher education?

State benefits and tax allowances each month

Child benefit for first child: £67.15

Child benefit for second child: £44.85

Children&#39s tax credit

£43.00

Monthly total:

£155.00

This is an example for a family with two children, assuming neither parent is a higher-rate tax-payer. Your client could fund a tailor-made savings plan for one child with less than a third of this amount.

With a friendly society savings plan, up to £25 of each monthly contribution can be invested in a fund that grows free from income and capital gains tax liability, which should help the savings grow more quickly.

The balance is invested in a fund taxed at the usual rate for life insurance funds. For the individual investor there is normally no personal tax to pay when the plan reaches maturity.

A university bond can be arranged in the name of the child, with the parents paying monthly contributions. Alternatively, a parent can set up the plan in his or her own name.

Contributions are mainly invested in the shares of leading UK companies and Government securities. As this is a traditional “with-profits” plan, the ups and downs of the stockmarket are smoothed out over the medium to long term, with the added benefit of a minimum amount guaranteed at maturity.

A regular bonus is added to the plan each year and this is guaranteed once added, provided the plan runs its full course. There may be a final bonus added at the end of the savings period. The plan pays maturity benefits in three or four yearly instalments, one for each year of a typical university course.

The maxim is to start early – the younger the child at the start of the plan, the more affordable saving for their education should be.

Outside Inside

London London

Child now aged 7 £29,997 £35,829

Child now aged 3 £33,762 £40,325

Newborn child £36,893 £44,064

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