For years parents and students have been told “you don’t need to save up for university, tuition fees are paid for you.” Yet there’s something they’re not telling you – there is a hidden parental contribution – and everyone with children who may go to university need to know about it.
This isn’t about tuition fees. For those who are charged them, as long as you’re a first-time UK undergraduate they’re paid for you by the Student Loan Company. And you only repay it after university, if you earn enough. In England you repay 9% of everything earned above £25,000 and most will do that for 30 years before it’s wiped. In practical terms it works more like a graduate tax than a loan.
This is all about living costs while at university
Full-time students across the UK (and from August new part-time students as well) are entitled to a loan for living costs too – repaid in the same way as tuition fees – it’s called a maintenance loan.
Yet even though students are old enough to vote, marry or join the army – meaning they’re independent – when it comes to assessing how much of the maximum living loan they get, for almost every under 25 year old English student it depends on your (i.e. parental) household ‘residual’ income.
This residual income is basically what you earn before tax, but after pension contributions, and there’s a small allowance if you’ve other children.
The proportion that’s means tested has increased substantially over recent years, from a third to over a half. So it has a massive effect on the size of the living loan that students get.
In fact few students actually get the full loan, as even £25,000 family residual income is enough to start reducing it. And by the time family income is £58,000 some start to get less than half the full amount.
Implicitly the gap between what a student receives and the full loan is meant to be made up by parents, after all, the amount received is only reduced depending on their income. Yet parents and students aren’t told this, they are only told what their loan amount is.
Many people who come to my TV roadshows are irate and say things such as: “The loan doesn’t even cover the rent.” When I explain there is a parental contribution and that’s why their loan is small, they’re shocked.
This is a disgrace. I believe if we’re going to keep a system that is dictated by parental income we should be honest. The loan letter should tell you what the full loan is, what you get, and that the gap is the parental contribution.
I’ve met two University ministers in the past few years to push this point. Yet nothing has changed. And the resultant lack of information means parents don’t plan, and there’s unnecessary friction between them and their student offspring.
Calculate what you need to contribute yourself
As the Government won’t tell you what you need to contribute, you have to calculate it yourself. The key is to subtract what you get from the maximum loan possible in your circumstances. The difference is the minimum parental contribution (minimum, as even then it may be a struggle).
To help, the maximum annual living loans for this year’s NEW starters (for existing students see my full guide at www.mse.me/parentalcontributions for the info) are…
– Living at home: £7,324
– Living away from home: £8,700
– Living away from home (London): £11,354.
So a student with family residual income of £50,000 studying away from home in London, will get a loan of £8,178 meaning the parental contribution is £3,176 each year.
And if you’ve more than one child at uni, that’s hardly taken into account. Your household income is only reduced by £1,130 per child, which has very little impact. Just imagine the problem for triplets.
If parents haven’t got the money to contribute they don’t have to
Ridiculously as this is based on parental income, there’s no obligation for parents to contribute. Students have no way to force them. Yet even if a parent doesn’t contribute the state doesn’t fund the gap unless you’re over 25 or have financially supported yourself for 3+ years, have no living parents, or are caring for a child.
If your child may go to Uni start saving
Use the ready reckoner at www.mse.me/parentalcontribution to work out if your child started university now how much you’d contribute over their University life.
This could easily be over £10,000. If you don’t have that cash – if you can start saving, do it sooner so it has more time to build up. If you’re putting money away each month, the best rates come from regular savers linked to your bank account, these can be 5% interest, so check if your bank has one.