Son or daughter just started University? Congratulations—but have you been saving enough?

The Institute of Fiscal Studies suggests that the average total debt incurred by today’s university students over the period of their studies will amount to £51,000. This sum comes as those in higher education saw the interest rate on student loans rise to 6.3% in September. Total student debt in the UK has now mounted to £105 billion as of March 2018, a figure £30 billion more than the nation’s total credit card debt!

The growing cost of higher education perhaps makes it unsurprising that 40% of parents are now starting to save towards future university costs before their children have even been born, with one in five hopeful of saving £2,000 by the time the baby arrives. Disappointingly, though, around two thirds of those who are saving are doing so by simply placing the funds in an everyday savings account, meaning their money is earning them a sparse amount in interest.

A different option to think about is a Junior Individual Savings Account (JISA) in the child’s name, which they can then access when they reach 18. The market leading rate for a cash JISA offers 3.6%, and the account currently permits £4,128 to be saved each year. Saving the maximum sum at that rate for ten years would result in a nest egg of £50,403 tax free for university fees with a healthy amount left over to cover other expenses.

While a cash JISA may provide steady interest payments, a stocks and shares JISA is also worth bearing in mind as the possible return on your investment can be higher. Both types of JISA can be opened simultaneously with the allowance apportioned between them, so splitting your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a tax free lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of saving for both your and your child’s future. This is an option which needs careful consideration, though, as you’ll need to ensure you have enough for your own retirement before paying for your child’s education. Clearly, spending your tax free cash on fees will reduce the available resources you have in what should be the best phase of your life!

For those able to do so, there may also be merit in speaking to your own parents about helping towards their grandchildren’s university costs. Instead of leaving money to a grandchild in their will, a grandparent could consider gifting towards fees and other expenses or placing the money in a trust, which might have the effect of reducing Inheritance Tax (IHT) in addition to allowing their grandchild to benefit from their legacy when they really need it. You can give away assets or cash up to a total of £3,000 in a year without incurring IHT. If you give away more than the £3,000 allowance, the excess amount generally becomes fully exempt from IHT if you survive the gift by 7 years.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate Taxation or Trust advice.

If you have any questions around this topic, please feel free to get in touch with us directly on 01789 263888 or email