UNIVERSITY is fun! Financing University? Not so much, writes Jo Jackson is Head of Financial Planning at wealth management firm, Brewin Dolphin in Newcastle.

So your child has gone off to start a new life at University? What an exciting time. Great experiences, new friends and learning to live independently. They’re laying the foundations for their future life, and having a good time doing so. Better still for you as a parent, you get the joyful task of working out how best to support them financially during their studies.

As you’d imagine, it’s a pretty complex situation. An average graduate can be left with debts of £44,000 after a typical three-year degree course, and that’s enough to make parents think about paying tuition fees and maintenance costs themselves. No one wants to see their child start their career up to their ears in debt?

Thing is, the unusual structure of student loan repayments means that paying fees and living costs upfront is not necessarily the most prudent thing to do.

In England and Wales full time students can borrow up to £9,000 a year for tuition fees and a similar amount for maintenance depending on where they study and if they remain living at home.

Both types of loan are repayable after the course ends, and both start incurring interest at a rate of RPI (the retail price index) plus around 3%, as soon as the money is borrowed.

However, a graduate only starts repaying their loans once they earn £21,000 or more a year before tax. The payment is 9% of the amount of earnings above that level. So someone earning less than £21,000 a year pays nothing, while someone earning £25,000 a year before tax would repay £360 a year (9% of £4,000).

For this reason, finance guru Martin Lewis (yes, him from the TV) says that parents should think about letting their children borrow the student loans and wait until after their graduation to see how much they are likely to earn before deciding whether it is financially sensible to step in.

However, that doesn’t factor in big salary increases, which would result in a graduate paying back the full loan plus interest at the top rate. So, some parents will be unhappy about the uncertainty of allowing their children to build up this debt and incur interest during their studies.

A compromise is to help your children work out how much they will need for the essentials, plus a bit extra for socialising. Initially, it might be a good idea to fund these costs on a monthly or even weekly basis, until they get used to sticking to a budget and for the parents to hold on to the majority of the money that was earmarked for tuition fees and maintenance.

This ultimately gives you the most flexibility in how you support their children because your child could use the money later on, for inevitable ‘other’ big costs such as a first home deposit, a wedding, or start-up money for their own business.

Then, if your child looks set for a high earning career or if there is a sharp rise in RPI and you think the cost of interest becomes unacceptably high, you can still choose to step in and repay the student loans.

OK, maybe on reflection it’s not all that much fun for a parent to work all this out, but it is very important - and there are experts here to help guide you through it.

To find out how our personal financial planning service could help you sort out issues like this, or pension planning, tax, and many more issues, give us a call on 0191 279 7300.

For more information, please visit brewin.co.uk/Newcastle or follow us on Twitter @brewindolphin

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.

The Brewin Dolphin Group manages over £30 billion of funds for over 100,000 private clients and of this £26.2 billion is on a discretionary basis. BD has 28 offices throughout the UK, Eire and the Channel Islands.

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