Parents worry about university fees and student debt more than about problems such as drugs and teenage pregnancy, according to a new survey by LCA Business School. With another study from uswitch.com reporting that graduates now face an average debt of £21,198 after university – taking on average 11 years to pay back – it’s not surprising. But there are ways to minimise your concerns and their debts.
First, find out about basic financial assistance and loans available to cover tuition fees and living expenses, says Tom Pearson, financial support adviser at City University London. “Students and parents can make calculations of how much they expect to receive from the Student Loans Company, and then see how much support might be needed to fill the gap by completing a basic budgeting calculation. Online tools such as www.studentcalculator.org are useful; they give you an idea of how much graduates will repay when taking out loans. And I also recommend Martin Lewis’s www.moneysavingexpert.com.”
Tuition fees aside, the biggest chunk of money will go on rent. Traditional university-owned halls of residence are oversubscribed, warns Simon Thompson, managing director of www.accomodationforstudents.com, who suggests looking into private halls. “They are expensive, with prices ranging from around £75 to £120 per week, but they are usually in convenient locations and bills are often included. For an 18-year-old who might have no idea of what is involved in managing budgets, these all-inclusive packages can be appealing for both parents and students,” he says.
Shared housing is the next best option. “Encourage them not to be shy when examining properties, stressing the importance of seeing an inventory to ensure they get their deposit back. Get them to negotiate what they want fixing and installing before they move in,” advises Thompson. If you’re helping foot the bill, impose a budget before the house hunt. “The average weekly rent last year was £65.30,” he says.
Before your child becomes the named account holder for the property, ensure they trust their housemates to pay their fair share of bills. “All too often, irresponsible tenants refuse to pay up, leaving the named account holder to foot the whole bill,” reports Thompson. “If they can’t, they may acquire a poor credit rating and even become black listed by utility companies.”
They’ll need a household television licence and while full-time students are exempt from council tax, part-time students aren’t. Also consider insurance, as student digs are a target for thieves. Increasingly, wealthier parents invest in a property their child lives in during their studies, renting out the extra rooms to other students. If you’re considering this, remember that location is everything. Good transport links and proximity to campuses are always popular. Bath Building Society has a “buy for uni” mortgage that gives students the option to purchase a property for university, rather than rent.
If you decide to provide money for living costs, avoid providing a large sum upfront, says Scott Gallacher, an independent financial adviser at Rowley Turton. “A monthly allowance avoids the temptation of blowing it all at once, and prepares them for working and earning a monthly salary.”
Regardless of whether you’re contributing or not, draft a budget plan together, based on estimated income, and insist they stick to it rigidly, reminding them that the student loan is there for the essentials, he says. If they want to go clubbing every night, they need to get that money separately.
“Get a job” is the obvious (but underused) advice from Blair Cann, an independent financial advisor from M Thurlow & Co. “Meaningful independence simply isn’t achievable without financial independence,” he says. “Without acknowledgement of this, the probability is that this period of life will be marked by untold arguments and stress on both sides.”
It’s surprising how many job opportunities there are on campus or in the local area, says Mark Osland, director of Formula, a chartered financial planner. “The long summer holidays should certainly involve some paid work.”
Danny Cox, a financial adviser at Hargreaves Lansdown, says: “My son starts university in September and I’m going to support him by matching every pound he earns. This will encourage him to work for a few hours a week and learn to pay his way better. At the end of his time at university, I will also pay off some of his debts, depending on how well he’s done academically and how well he’s managed his money.”
He advises encouraging your child to keep a spending diary. “It focuses the mind on what, when and how much you are spending. Even the all-important budget is second to this - the key point being that a budget is meaningless without the discipline to stick to it. A spending diary will help with this.”
Another trick is to get your child to take out two bank accounts - one for essentials such as rent, and one for luxuries such as socialising. “This will help them know exactly how much they have and avoid spending on the wrong things,” says Frederic Nze, CEO of Oakam. The worst thing your child can do is recycle debt. That is, take out another loan to pay off an existing one.
“This can quickly spiral out of control,” he says. Get them to avoid credit cards altogether if you can. APRs can be misleading. Far better are prepaid cards, which you can top up when you like to give you all the benefits of a credit card - purchase protection, safe shopping online, flexibility – but without getting into debt. Shop around for a bank account too: often student accounts can save lots of money through bonuses such as free student railcards, which can be used for visits home.
There is a huge payback to all of this, says Nze. “Ensuring your child learns how to manage their money while at university will help cement good money practice in their future lives. During my career, I’ve often noticed that students create poor credit histories for themselves during their university years and it only sets them up for further issues in obtaining credit in the future.”
Whatever happens, keep the lines of communication open, he says. You can do all the planning in the world and agree boundaries over who pays what, which is all great, but it’s equally important they know what to do when they have run out of money and take action where needed. “Your children should always feel they can confide in you about this.”