Ready to foot the bill?

Many parents do not realise how much they may have to contribute to college costs, says Tony Lyons
If your child is going to university or college next month, are you ready to foot the bill? Many parents of the 800,000 or so students heading for higher education will be unprepared for the costs involved. If you haven't worked it out by now, there's no time to delay. Latest estimates are that, if your child decides not to take out the loans, it will cost around pounds 15,000 to pounds 18,000 for a three-year degree course.

The maximum grant has been fixed for a number of years at pounds 1,855 outside London and pounds 2,340 in London for students living away from home. But that's fast becoming irrelevant, since fewer and fewer students qualify for any grant, let alone the full amount.

If their parents have a joint income of over pounds 16,050, the grant is reduced. Earn more than pounds 32,500 after allowances and they will get no grant at all. It is estimated that under a quarter of this year's intake will receive a full grant while as much as a third will get nothing at all.

All that will be covered by the state are tuition fees - and this year's intake is the last for which those will be fully paid. From 1998, students going into higher education will contribute around pounds 1,000 a year, depending on parental income, towards the cost of tuition. This will be paid for by much higher interest-free student loans, which will only be paid back once the student is earning.

If your child is going to Liverpool or one of the other cheaper university towns, the National Union of Students estimates that they will need at least pounds 4,300 a year.

More expensive towns will cost at least another pounds 1,000 a year. Although the loans are designed to cover most expenditure, in practice they do not do so at the moment. Unless you had the foresight to start a savings plan early enough - and not many did - any contribution would have to be made out of income.

This could put a hefty dent in your salary. There are ways of reducing the impact but none of them is cheap. If there is sufficient free capital value in the house, it can be used to raise a first or second mortgage.

Some institutions offer special deals on money borrowed to pay for education. But you should expect to pay the going rate of interest. The Halifax, for example, has a drawdown loan that allows a minimum of pounds 1,000 a time to be taken up to four times a year.

There is a pounds 150 arrangement fee charged for setting up the scheme. Personal loans from a bank are another possibility, but relatively expensive - most charge at least 18 per cent interest.

A better option for those with gold credit cards is to use the low-cost loans that some offer. NatWest's gold card, for example, allows up to pounds 10,000 to be borrowed with interest of 3 points over base rate, with a minimum charge of 10 per cent.

If you have a with-profits endowment policy, money can often be borrowed from your insurance company. Most insurers offer loans at reasonable rates, with the capital being repaid out of the policy's maturity value.

If you do not like the idea of borrowing money, and you cannot afford the student finance being paid out of income, then you will have to raise money by other means. For example, life assurance policies can be sold.

There are a number of firms now trading in second-hand policies who all tend to offer more than the surrender value paid by the insurer.

No matter how much you have to scrimp and scrape, it will always be worthwhile paying for your child's university lifen