14th September 2015
Squirreling away just £20 a week could help pay for a student’s university costs according to new figures from Fidelity Personal Investing.
Over the coming weeks, thousands will head to university for the first time to begin ‘Freshers Week’ and the start of their university education.
However for many this comes at a big cost – and that price is student debt, with tuition fees of around £9,000 a year.
But Fidelity Personal Investing has calculated that by saving just £20 a week into a Junior ISA from the day your child is born until their 18th birthday, assuming a growth rate of 5% and 1.1% in charges, would leave them with a pot worth £27,126.762 – enough to cover these costs.
However, if you saved, £33 a week, your child’s Junior ISA could grow to £44,759.153 in 18 years. This could cover the cost of your child’s maintenance loan of up to £5,740 a year for the three years as well as their tuition fees – a total of up to £44,220.
Following the Conservative government announcing in this year’s Budget its plans to scrap university maintenance grants from September 2016, students could find themselves in even more debt.
Maike Currie, associate investment director at Fidelity Personal Investing said: “Student debt isn’t ‘ordinary debt’. It won’t go on your child’s credit file and they won’t need to pay it back until they are working and earning £21,000.
“However, with the average graduate starting salary in the UK at £28,000, a number of those who enter the world of work will start paying back their student loan in the April after their graduation. Monthly repayments are 9% of any income over £21,000, so say they’re earning £28,000, they will pay back 9% of £7,000 a year.”
In the meantime, these loans will start raking up interest which is linked to the RPI measure of inflation and that starts accruing the moment the loan is taken out. The interest rate is updated in September each year, using the RPI measure of inflation from March of that year plus a maximum of 3%, depending on how much a student earns.
“Parents should remember that saving into a Junior ISA is a great way of spreading the cost of university across the first 18 years of your child’s life, and it’s always much easier saving a little each week or month, rather than stumping up a large lump sum,” added Currie.