Raising the cost of graduating

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The Independent Online
HUNDREDS of thousands of parents face the prospect of making greater financial contributions towards their children's higher education.

The mounting cost comes as a Department of Education survey, published this week, shows that students' incomes have fallen by 10 per cent in the past four years, while their debts have gone up by almost 40 per cent.

Grants for Britain's 600,000 undergraduates are being cut by 10 per cent next year, and a further 10 per cent in the following year. In London, the cut will reduce grants from pounds 2,845 to pounds 2,305 by the 1995/96 academic year. Outside the capital, grants will drop from pounds 2,265 to pounds 1,835 over the same period.

Parents are expected to contribute towards the grant. A couple jointly earning pounds 25,000, with two teenage children, a pounds 60,000 mortgage and pension contributions of pounds 100 a month, should pay about pounds 600 a year towards a grant.

The Government is replacing grants with loans. Next year, students can borrow pounds 1,375 in London and pounds 1,150 outside, rising further in 1995/96.

But many parents prefer to give their children more money rather than let them go into long-term debt. The DoE survey said 57 per cent paid more than they were liable to.

Paul Gauntlett, a director of the financial advisers Moors Marr Bradley, said saving in advance is key. One low-risk option is National Savings, which pays 5.4 per cent net over five years.

Offshore currency deposits in the child's name with a roll-up of funds may also be suitable. When the deposit is cashed, the child may not be liable for tax.

Personal equity plans, such as a High Income unit trust from the fund manager Fidelity, or the Guinness Flight Equity and Bond fund are medium-risk options. An Income Pep from Perpetual is higher-risk.

Increasing pension payments is another way of cutting parental contributions. For the family earning pounds 25,000 a year, an extra pounds 100 a month into their pension would increase a grant by about pounds 150. Usual income tax exemptions also apply.

Those paying into their occupational schemes can make additional voluntary contributions. Parents with an AVC should ask about the possibility of boosting contributions further. Contributions must begin before the grant application is made.