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This article appeared
in the Ham and High Education supplement
Earlier in the year, the Government narrowly won a
vote to introduce top-up fees into higher education. Much has been said
and written about top-up fees. But what does it really mean, and how does
it affect you and your family? What can you do to meet the increased cost
of higher education?
From September 2006, universities will be
able to charge students top-up fees to meet part of the cost of their
courses. Universities are free to decide the cost of their courses, within
limits; some universities and courses may not have any fees, while others
may charge the maximum £3,000 per year.
Students will not have to pay the fees upfront,
but will be offered a loan to meet the cost of fees. Repayments start
after they have completed their studies and started earning an income.
Loan repayments will be deducted directly from their earned income, like
National Insurance contributions. Initially students will only start paying
off loans if they earn over £15,000 per year.
Payments will be based on 9% of the student’s
salary above £15,000. So if a student earns £14,000 per year
when they leave university, they will not repay the loan at that time.
However, if that student’s salary rises to £15,500, they will
start repayments of 9% of £500, making a repayment of £45
per year. Students who still have outstanding repayments after 25 years,
will have their repayments written off.
Under the new system, there will be some
financial assistance for poorer families. Some of the poorest families
will be guaranteed a grant of £3,000 a year. From 2004, families
earning less then £21,185 will be given a new grant of up to £1,000
towards living costs. This will rise to £1,500 by 2006. Families
earning less then £30,000 will be exempt from the first £1,200
of the fees.
As well as the cost of the course, families
need to bear in the mind the cost of university living which can include
accommodation, bills, travel, food and books. The current student loan
will be increased to meet this basic cost of living.
With an interest rate equal to the rate
of inflation, the fee payment schemes are not expensive. However, with
estimated debts of £27,000 for the average student and £48,000
for medical students, you may not want your children to leave university
with huge debts, in which case you need to look at different investment
options.
Lower risk savings and investments give
a predictable return, but you are unlikely to see spectacular returns.
For the very cautious investor, a notice account, term deposit bond or
National Savings certificate should give you a better rate of return than
you would get on money kept in a bank. Investing in gilts, bonds and stock-based
investments, which are loans to government or companies, is riskier, but
offers greater potential returns.
For the more adventurous, investing in share
or equity markets may be the answer. The potential gains are much greater,
but so are the losses. Property investment is another way of building
a lump sum to pay for costs, or generating income to meet on-going expenses.
Buy-to-let property is an option for active investors, who want to get
directly involved in the selection, letting and management of their investment.
Property funds and partnerships are an alternative way of investing in
property, without the headaches that go with running your own portfolio.
Remember tax can eat away at your savings
and investment returns. Through careful planning and using a range of
different investments, you can minimise the tax that you pay.
An Individual Savings Account (ISA) is one
form of tax-efficient investment that many people have used to save and
invest to meet university costs. But the ISA tax rules will change on
6th April 2004 and certain types of ISA will offer fewer benefits than
they once offered. Depending on your personal tax position, some offshore
and life assurance-based investments can work out as being tax-efficient.
Every person living in the UK, whether they
are an adult or child, is entitled to personal tax allowances. For the
tax year starting on 6th April 2004, the first £4,745 of your income
received each tax year is free from income tax. Everyone also has an annual
capital gains tax allowance, which will be £8,200 from 6th April.
As well as using your own allowances each
year, you should try to use your child’s allowances. Parents who
want to put money aside for their child can invest on their child’s
behalf. You could put money into savings in your child’s name, or
if you use a simple trust you can keep control of the money, but still
use your child’s tax allowances. But remember that if the income
on the child’s savings exceeds £100 per year, it is all treated
as the parent’s income for tax purposes.
Even if you have made plans to meet fees
and other costs, you will need to keep an eye on your money’s performance,
whether you have invested it or are keeping it in the bank. If you are
unable to work, fall ill or die, there can be dire financial consequences
for your whole family. It is always worth considering what you would do
if the worst came to the worst. Properly used, insurance and protection
policies can reduce the risk that your family’s finances are exposed
to.
If you would like to discuss saving or investing
for your children call Benjamin Gibbs, from Glazers Financial Services,
on 020 8458 7427 or email him at ben@gfsl.com.
Glazers Financial Services Limited are an
appointed representative of Sesame Ltd which is authorised and regulated
by the Financial Services Authority.
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