Summer is a great time to spend with the family during the holiday period. There has been much going on with events and social outings, along with holidays, being enjoyed by many. A great distraction from the autumn months when new school terms start and the reality of funding this education need, from uniform costs to school/ university fees as examples, to be considered and planned for. All very topical subjects this month with exam results being released and the Government making its announcements on a new Child Care cost system (August 2013) from 2015.
These education issues are a concern to many parents and grandparents alike and, like pension planning, planning early and funding correctly can be used to meet future requirements. I have detailed some thoughts on this financial planning topic below. As I am sure you would expect, the team at Chapters Financial Limited can help you with meeting your financial planning strategy for this need.
University – Tuition Fees and Costs
Recently, the Government introduced legislation which allowed Universities in England to charge tuition fees for attending their courses. The current permitted maximum tuition fees within English universities is £9,000 pa (2013) for UK/EU based student nationals. Almost three quarters of universities in England are planning to charge the maximum £9,000 pa tuition fee for some or all of their courses, according to Office for Fair Access (Offa - their website can be accessed using the following link
http://www.offa.org.uk/ ).
With estimated living costs, of approximately £10,000 pa, and upwards, on top of the tuition fee then a standard 3 year honours degree could cost anything in the region of £57,000. Considerably more if postgraduate study is undertaken. This would be a tremendous burden of debt for any graduate to start off their future career.
Currently, there exists the option of a Tuition Fee Loan which is paid directly to the university or college. Currently the maximum loan available is £9,000 for a full-time English / EU student. The loan would start to be repaid when the income of the student / graduate is greater than £21,000 gross pa. The interest rate charged on the loan is rate of inflation, Retail Prices Index (RPI), plus up to 3% pa (depending upon study period and income) and applies until the loan is paid back in full. More details on student finance can be found at the Government Student Finance website (
https://www.gov.uk/student-finance).
Private School Fees
According to the latest census by the Independent Schools Council, average fees have risen by 3.9% to £4,765 a term (or £14,295 pa in 2012/2013). Further information can be found on the Independent Schools Council website at (
http://www.isc.co.uk/ ). If you want your child to board then this could increase to an average of £10,054 a term (£30,162 pa) in Greater London, for example.
As you can imagine, if the choice / option to send your children to an independent school, rather than rely on the state education system, has been made / is being considered then the total costs can be significant and could far outweigh the costs of attending university noted above.
Possible Solutions?
There are many different solutions to help plan for these future costs. One key area which should be taken into account is the effect of inflation, which could erode the real rate of return. Also, the time horizon available before the money will be required.
For example, we have commented in previous blogs on the use of Junior ISAs (JISAs) or Child Trust Funds (CTFs), however, these would not allow access to any capital until the child reaches the age of 18 and at that point it is the child/young person’s money, not the parent’s / guardian’s money, to do with how they wish. This raises the concern that they may not choose to spend it on education.
Another example, which may appeal to Grandparents, might be the use of the Annual Gift Allowance, which allows each individual to gift £3,000 pa and this money will be outside of their estate, for Inheritance Tax purposes, with immediate effect.
As an example, if this £3,000 pa was gifted to the child’s parent to save in an ISA arrangement for 15 years at £250 per month, to provide for university costs at a child’s 18th birthday, this might provide capital of £68,100 at that time.
Source: FundsNetwork illustration, with an Assumed Return after charges of 5.3% - not guaranteed, Past Performance is not a guarantee of future performance.)
Summary
Is there an answer to the rising costs of education and the way it should be funded? Invariably, a combination of planning solutions are used and there is no simple answer apart from to start planning for the potential cost as early as possible and seeking financial advice from a professional Financial Planner.
No individual advice has been provided in the content of this blog. For individual advice on your education cost provisions and needs, please contact the team at Chapters Financial on 01483 578800
Simon Hewitt BSc (Hons) DipPFS
Financial Planner
Chapters Financial Limited
Chapters Financial Limited is Authorised and regulated by the Financial Conduct Authority.
Chapters Financial Limited is not responsible for the content of external websites.
As the momentum and delivery requirements of pension Auto-Enrolment (AE as it is sometimes known) become paramount for many more employers (as their Staging Dates come closer), we have prepared an employee focussed presentation that meets the needs of the new pension legislation and themed to the employers requirements. This is illustrated in the picture of our Financial Planner, Simon Hewitt, delivering the details and requirements of Auto-Enrolment to the employees of a medium-sized company in their locality in early autumn 2013. This was followed by a Questions & Answers session, along with hand-outs, to answers points raised by the audience, with some very positive feedback to this required retirement initiative.
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