True cost of university – and how to fund it

The rising cost of university means that many students face graduating with enormous levels of debt.

They might not need to pay it all back, as repayments won’t kick in until they earn more than £27,295 a year¹(£25,375 in Scotland²), but having tens of thousands of pounds of debt hanging over you can be disheartening.

Paying for university fees out of your own savings could give your child a valuable head start in life, potentially enabling them to get on to the property ladder sooner than their peers. However, if you haven’t factored the true cost of university into your financial plan, you might not be able to make the contribution you’d like.

How much does university really cost?

Tuition fees in England, Wales and Northern Ireland cost up to £9,250 per year³, or £27,750 for a three-year course. For those who live in Scotland and go to university in Scotland, fees are £1,820 a year, but these are usually covered by Student Awards Agency Scotland (SAAS)⁴.

For students living away from home, there are also living costs to consider. These average £924 per month for the typical UK student⁵. Assuming your child pays these costs for nine months of the year, this would add up to £24,948 for a three-year course or £33,264 for a four-year course (undergraduate degrees are typically three years, except in Scotland where they are usually four years).

So, depending on where your child’s goes to university, you could be looking at a total figure of around £53,000 – and that’s in today’s money. For parents planning ahead, this figure could be closer to £71,000 in 15 years’ time, assuming an inflation rate of 2% per annum.

How to plan ahead

These are daunting sums of money, but they could be achievable if you plan early enough. Our analysis shows that if you invested £320 a month over 15 years, you could build up a pot worth just over £73,000, assuming an annual return of 3% after inflation (assumed at 2% annualised rate) and charges. This could cover three years’ worth of tuition fees in England Wales or Northern Ireland, plus living costs, in 15 years’ time.

Remember, this figure is dependent on achieving a ‘real’ (inflation-adjusted) return of 3% on your money each year. It’s unlikely you could achieve this return by leaving your money in a cash savings account, so you may wish to consider investing at least some of your money in the stock market. Although the stock market is volatile, history shows that over long periods it tends to perform more strongly than cash, thereby boosting your chances of making a valuable contribution towards your child’s university fees.

The chart below shows that investing £100 in the FTSE All World in 1899 would have generated a return of just over £87,000 by the end of 2021. This is on a ‘total real return’ basis (combining share prices changes and dividend income, and adjusting for inflation) and before fees. Conversely, leaving £100 in cash savings (based on the Bank of England base rate) would have produced a return of only £322, after adjusting for inflation.

Source: Dimson-Marsh-Staunton / Morningstar

Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance.

Next steps

Taking control of your finances can feel daunting, but sticking your head in the sand isn’t the answer. The impact it could have on your children’s financial future makes it well worth it, and it’s not something you want to get wrong. Taking some really good financial advice could make a real difference to you and your plans for the future. So why not speak to one of our financial advisers today?

¹https://www.gov.uk/government/publications/student-loans-a-guide-to-terms-and-conditions/student-loans-a-guide-to-terms-and-conditions-2022-to-2023
²https://www.mygov.scot/repay-student-loan
³https://www.ucas.com/finance/undergraduate-tuition-fees-and-student-loans
⁴https://www.saas.gov.uk/
⁵https://www.savethestudent.org/money/student-budgeting/what-do-students-spend-their-money-on.html

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Forecasts are not a reliable indicator of future performance.