Preparing for the cost of further education

More farming families are sending a son or daughter to university or college. The cost may be daunting, but help is available, as Olivia Cooper reports

Higher education can be a great concern for parents. With the rules over tuition fees changing regularly, many are concerned how much it will really cost. Previously, poorer students would have some, or all, of their fees paid for them, but now everyone must pay the full balance of their fees, regardless of family income.

In 2009/10, universities and colleges in England, Northern Ireland and Wales can charge tuition fees of up to £3225 a year to new UK students. Students studying in Scotland are not required to pay fees, while those at colleges in Wales pay a maximum of £1285 a year.

However, students no longer have to pay fees up front. Instead, they can take out a tuition fee loan, which is not means-tested and defers payment until after graduation. Interest is applied from the moment the loan is taken out, and, being tied to the Retail Price Index, is currently pegged at 0%. Students who wish to pay their fees without using a loan must still do so up-front.

Students from poorer backgrounds can apply for a maintenance grant of up to £2906 a year. Those with household incomes of below £25,000 in 2009/10 will receive a full grant, with a partial grant available on a sliding scale, up to incomes of £50,020.

The household income assessment includes parents’ income, unless the student is deemed independent – for which they must be aged 25 or over; married or in a civil partnership (in which case the partner’s income is assessed); have supported themselves for three years; or have dependent children of their own.

Additional financial help is available for the poorest students in the form of a bursary, which makes up the difference between the maintenance grant and the college’s tuition fee.

Living costs

Most students rely on a student loan for everyday living costs. The maximum amount they can borrow depends on several factors. The highest rates are available for students studying in London – at up to £6928 a year – and the lowest for those living in the parental home, at £3838.

However, loans are also subject to the household income assessment, so wealthier students will only be able to borrow 72% of the maximum loan rate. Middle-income students will be able to borrow the full amount, but will not receive any maintenance grant, while those receiving the grant will see their loan amount decline by 50p for every £1 of grant, reducing the loan by up to £1260.

There are also several other grants available to help certain students, including those with dependants, medical and dental students and disabled students.

Typically, students based outside of London will spend £14,088 a year on course fees and living costs, including rent, food and travel, says the National Union of Students. With a potential income of £7892 through loans and the maintenance grant, that leaves an annual shortfall of £6196.

On average, those starting their studies in 2009 will graduate with a student loan of £23,500. Loans are repaid through the tax system, and are dependent on graduate income, with repayments made at 9% on income more than £15,000 – meaning many loans take decades to repay.

Tax-efficient saving

Parents seeking to ring-fence savings for their children’s higher education could combine saving with inheritance planning for greatest tax efficiency, says Catherine Vickery from accountant Old Mill Rural Services. “By using a discretionary trust, parents or grandparents may be able to pass on assets without incurring inheritance tax or capital gains tax – and any income derived from those assets could be used, tax-free, to pay for university fees.”

Although income produced within the Trust will be taxed at 50% from April 2010, the tax may be reclaimable once it is distributed to the beneficiaries – who could potentially receive it 100% tax-free. “This is a very efficient way of getting income into the hands of your children or grandchildren, while keeping control of the asset, and mitigating inheritance tax liabilities,” says Mrs Vickery.

Other alternatives include paying wages to your children for working on the farm during university holidays, making it a tax-deductible expense for the business, or making regular gifts out of income as part of inheritance tax planning, she adds. “Every situation will be different, and it is essential to get the structure of any tax vehicle correct, so seek professional advice as early as possible.”

Further Information National Union of Students www.nus.org.uk or 020 7380 6600 Student Loans Company www.slc.co.uk or 0845 026 2019