Joseph Bacon
Private Client Adviser
This autumn, millions of students will be heading to university – either for the first time or to continue their studies.
The Daily Mail reports that 425,680 prospective students did well enough to make the grades necessary for their conditional university placement offer in 2024, with the proportion of A-level entries awarded top grades rising from 2023 numbers.
If you have a child or grandchild planning to move into higher education, one of your concerns may be about the accumulated cost of university life.
So, to help you, here’s a guide to the cost of university in 2024, and a look at the pros and cons of using student finance or helping a student through a monetary gift.
The cost of university in 2024
Tuition fees are one of the biggest costs of going to university. The annual cost for students varies across the UK:
- England: £9,250
- Scotland: Free for the majority of Scottish students, and £9,250 for other UK students
- Wales: £9,250
- Northern Ireland: £4,750 for Northern Irish students, or £9,250 for other UK students.
So, for a three-year undergraduate course in England, most students will pay £27,750 for their tuition.
Accommodation is a further significant expense a student will likely face. According to the 2024 National Student Accommodation Survey, the average student pays £550 a month in rent. This rises to £778 a month in London.
Those living in private halls pay the most (£613 a month), followed by those in university accommodation (£596 per month). This is not surprising as halls are generally more likely to include the cost of bills in the rent. Students with private landlords are paying comparatively less (£525 a month).
As well as accommodation, students will also incur living costs for expenses such as food, course materials, and transport. Many in private accommodation will also have to contribute towards the cost of utilities.
Research from Save the Student reveals that the average student spent £639 a month in 2023 on living costs (not including rent).
Again, there were significant regional disparities. Four of the universities in the top 10 for total spending (excluding rent) are based in London, while eight of the top 10 are in the south of England.
Overall, the BBC reports that graduates in England leave university with average debts of £44,940.
Using student finance to fund costs
Most students can access student finance to meet both the costs of tuition fees and to cover day-to-day expenses.
However, as maintenance loans are means-tested by household income, you may find that your child or grandchild is only eligible for the “minimum” annual maintenance loan. In 2024 this is:
- Student living at home – £3,790
- Student living away from home, outside London – £4,767
- Student living away from home, in London – £6,647.
There are many advantages to using student finance to meet the cost of university, rather than funding fees and expenses through capital.
Firstly, for students joining a course after 1 August 2023, they only start paying back any loan once they earn a minimum threshold income. In England in 2024, this is £25,000 and the earliest they will start payments is April the year after they end their course.
Students generally pay 9% of anything they earn over the threshold. So, if they start a graduate job at £30,000, they will pay 9% of £5,000 towards their loan – around £38 a month.
If their income falls below the repayment threshold, the repayments will stop and only restart when their income is over the threshold again.
There are also certain circumstances where the loan is written off altogether:
- Any amount outstanding after 40 years
- On death
- If an individual becomes permanently disabled and unable to work.
The government itself forecasts that only around two-thirds (65%) of full-time undergraduates starting in 2023/24 would repay their student loans in full.
Gifting to a child or grandchild can benefit your financial plan
Student finance can be a sensible way for a young adult to fund their education. They will only make repayments when they can afford to – essentially paying a 9% additional tax on earnings – and a third of students will never repay their loans in full for the reasons above.
However, for many young adults, the prospect of leaving higher education in tens of thousands of pounds of debt can be stressful and might delay the achievement of other life milestones such as starting a business or buying a home.
In these instances, you may be considering helping out by either funding their expenses or repaying some of their debt.
If you are facing a potential Inheritance Tax (IHT) liability, gifting during your lifetime – for example, to help with higher education costs – can help you to pass on wealth tax-efficiently.
Every individual has an annual £3,000 gifting allowance (2024/25) and this amount will immediately fall outside your estate for IHT purposes. You can also carry forward one year’s unused allowance.
Gifts made now may also fall outside your estate if you survive for seven years after making them – this is another advantage of passing on wealth now rather than in your will.
Gifting from your income can also be a useful way to mitigate IHT and help a relative with their living costs. This exemption applies as long as your gifts:
- Are regular
- Come from income and not capital
- Do not negatively affect your own standard of living.
Keeping close records can help your beneficiaries to evidence the gifts you made to HMRC.
Investment bonds – either onshore or offshore – can also provide useful planning opportunities here.
We have some clients that own investment bonds that are segmented, and they can assign segments of these bonds to their children or grandchildren to help with school or university fees.
The advantage of this is that the beneficiary is likely to be a basic-rate taxpayer and, when the assigned segment(s) are surrendered, they are assessed on them and not the parent or grandparent who may well be a higher- or additional-rate taxpayer.
Consequently, bonds with higher accumulated gains can pay monies to the beneficiaries more tax-efficiently.
Could your gift be better used for another purpose?
If you’d like to make a gift to a child or grandchild, one final aspect to consider is whether this should be to fund their education, repay their student finance, or for another purpose.
As you have read, many student loans will never be repaid in full, and your adult child or grandchild may only be making a small repayment.
So, it can be worth thinking about whether a cash gift could be used for a different purpose. For example, would contributing to the deposit of a first home, injecting capital to help them start a business, or helping them with wedding expenses be a more appropriate use of your gift?
If you’d like to explore your options for passing on wealth, and how you can do this in the most tax-efficient way, contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, or trusts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
