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How to graduate from a £100k university degree without a penny of debt

Laura Miller
The cost of going to university has jumped in recent years but is it worth paying upfront? - PA

Families who want to ensure children leave university without debt should start saving now as the cost could soar to £100,0000 just by rising in line with inflation.

High school students will find out their A-Level results next Thursday 15 August with many hoping for the grades needed to continue their studies. After a three year degree course most can expect to leave university with debt of around £50,000, according to the Institute for Fiscal Studies.

Parents or grandparents to young children can help them get a higher education without facing a lifetime of paying for it by starting to save and invest for them while they are still in nappies.

University tuition fees are up to £9,250 a year. The National Union of Students has calculated living costs, accommodation and food, can average £12,160 a year, bringing the total price for a three year course to as much as £64,000.

Based on these figures rising in line with inflation, Brewin Dolphin, an investment firm, has calculated that by the time a child born today turns 18, the average price of going to university away from home could be just over £106,000.

Investing £346 per month into a stocks and shares Junior Isa when a baby is born will cover the full cost by the time they graduate at 21, assuming average returns of around 5pc a year.

Alternatively families could invest a lump sum of £42,400 now and expect it to grow to cover these future costs from age 18.

Using the same growth rates as above, waiting until five years before your child goes to university to start saving means you will need to invest £953 a month or a lump sum of £76,698.

Grandparents can also get in on the act by gifting money to grandchildren to help with university costs, which also reduces future inheritance tax (IHT) bills for loved ones.

Up to £3,000 can be giving away each tax year without being subject to IHT at 40pc.

On top of this, any amount can be given any time free of IHT if it comes out of the gifter’s income and their standard of living is not affected.

‘Potentially exempt transfers’ are another way to give tax-free gifts but the giver must survive for seven years after this has been given and can no longer benefit from it.

Liz Alley of Brewin Dolphin said: “We see parents, and increasingly grandparents, happy to make financial sacrifices to ensure their children receive the best education and ensure that they aren’t saddled with debt. 

“They must start thinking about their finances as early as possible to make the most out of the funding solution that suits their circumstances. Starting earlier will also mean you can benefit from compound growth.”

However paying all of your child’s student costs up front is likely to be the best option only if they intend to go into a high-flying or particularly lucrative career.

Martin Lewis of MoneySavingExpert, the consumer website, has argued that, for most graduates, the repayment of student debt should be viewed as a form of tax, and not considered a debt burden or a reason to avoid university.

For current students repayments only begin once they start earning more than £25,000, at which point they are taken at a rate of 9pc. Graduates in lower-earning careers are unlikely to repay the whole amount before it is written off after 30 years, so they or their families would lose out by paying up front.

For higher-earners, however, the savings from upfront payment of tuition fees could be substantial. 

Take a graduate who gains employment at a starting salary of £35,000, increasing each year at 4pc above inflation. 

Annual tuition fees, plus maintenance loans of £8,340 a year, would cost £53,000 paid on graduation, versus paying back £96,000 gradually over 30 years, a saving of £32,500, according to MoneySavingExpert’s calculations.

Mr Lewis said nearly all parents should contribute to their children’s university costs, even if they are unable or unwilling to pay them in full.

He said: “The new university term will soon start and millions of supposedly independent students will be heading off. The system incorporates an expected ‘parental contribution’ to their finances. Yet this is never made explicit.”

Students are awarded living cost loans based on their parents’ income. According to Mr Lewis, families should work out how much less than the full loan award their child has been given and pay the difference.

For students living at home, the maximum loan award is £7,529. For a family with an income of £50,000, for example, whose child will receive £4,357, the minimum parental contribution should be £3,172.

For those with the same family income living away from home outside London, this falls to £3,209, and for those with children studying in London, it should be £3,263.

Mr Lewis added: “This goes unsaid, but it needs saying. Many parents I meet either don’t realise they’re supposed to contribute, or see it as a loose amount.”

laura.miller@telegraph.co.uk