University of Wolverhampton Students’ Union: Parents’ Guide to Student Finance
For many parents, the elation of your son or daughter going to University is swiftly followed by concerns about how to fund their study time and help them avoid student debt.
Tuition fees are a reality and they do have to be paid. This means “student debt” in most cases, is an unavoidable fact, but if managed correctly, student debt is what we call “good debt” and very different from the usual dealings with commercial debt. Rather than telling students to avoid debt, we should be educating them on how best to manage their money and avoid getting into bad debt.
There is financial support available to students to help with the cost of doing a degree and there’s no need for you or your son/daughter to be scared or discouraged from going on to University.
The information below will explain what you and your son/daughter need to know about funding university, from the student support package, to student bank accounts, credit cards and part-time jobs.
All UK students going to university or college will have to pay annual tuition fees toward the cost of their course.
As a parent, it is important to understand that there is no need to stump up your own money upfront. Your son/daughter can borrow the money for tuition fees and living costs based on the household income, but remember there is no attachment or drain on that income. It is for assessment purposes only to determine the level of loan awarded. The loan that the student has borrowed will only have to be repaid after they leave University once they are earning over the threshold (£26,575 per year - figure correct as of April 2020). If they continue with their studies or earn below the income threshold then they will not need to make any repayments.
1. Student loans (for Tuition Fees and Living Costs)
These loans are provided by the Government through the Student Loans Company (SLC). They are the cheapest form of money your son/daughter can borrow long term they only start repaying when they are in work.
The above loans are to pay for tuition fees and help towards day to day living costs such as rent and travel. The really important thing to understand is there’s nothing to repay until your child leaves University and is earning over the threshold. Even then they only pay a proportion of their income.
2. Family Assistance
As a parent, you might want to help your child out, yet the system is designed so that money should be available for your child to support themselves so you don’t risk putting yourself into debt. There may be a better and more financially sound way you can help.
You could help with money put towards course books or stocking up the kitchen cupboard at the start of term (if they’re living away from home). Helping your son/daughter with the practicalities of student life could be very welcome.
It is vital that students are able to differentiate between “good” and “bad” debt. It may sound bizarre, but some debts are much better than others – all debts are not the same! Below is a guide to the different types of borrowing for students:
Government Student Finance Package
The Student Loans for tuition fees and living costs should be your son/daughters first port of call. These official loans, administered on behalf of the Government by the Student Loans Company, are the cheapest long-term borrowing students can get and should always be the first place to borrow from. The loans are charged at the level of inflation plus up to a maximum of 3%. There’s nothing to repay until the student leaves University, is in work and earning above the threshold. Repayments are linked to how much they earn, not how much they owe.
Many of the big banks have created a special student bank account to target people going to University or College for the first time. They may offer incentives such as discounted rail travel. While these are appealing, it’s important to look beyond the freebies to what the account offers. The best account will have a 0% overdraft limit for the longest period of time.
Lending comes in many shapes and sizes: bank loans, hire purchase, credit cards and store cards. Most of these will be at commercial rates of interest, anything from 5% to 4000%. As students have limited income and almost certainly won’t start work until they graduate, this means when borrowing money they are more likely to only pay the minimum payment and paying a real rate of interest will incur compound interest (paying interest on interest) which will increase the amount owed.
So the message you should give your son/daughter is simple; planned, budgeted for, affordable debt is a reasonable life option – yet commercial debt that you can’t repay can cause major problems.
If they do need to borrow, then stress that the lower the interest rate, and the quicker they can repay means the less they will pay.
Budgeting is an essential skill at any stage of your life, but more important for those for those with limited finances like students. Budgeting is about making your income and expenditure match.
Budgeting tips for you and your child:
- Make sure your child doesn’t get the “spend it as soon as they get it bug”. When the loan or other money arrives it’s tempting to celebrate with a big blow-out but a big night out in fresher’s week could mean they can’t afford to go out for the rest of the term. Of course we all want to splurge, but the time to do it is at the end of term not the beginning, leaving them struggling.
- Encourage your child to seek assistance with budgeting. The Students’ Union run weekly Life Skills workshops to help students with budgeting.
- If your child is sharing accommodation, they need to be clear with flat mates about who will pay for what. Suggest that they consider a house kitty to cover costs.
- When shopping students should ask themselves three questions: “Do I need it?”, “Can I afford it?” and “Have I checked if it’s cheaper elsewhere?” If the answer to any of these questions is no, don’t buy it.
- Encourage them to budget for each term, if they stick to it they should be able to buy themselves a little treat at the end of term
- If you want to give your child money, but are worried how they will spend it, you could give vouchers for things like books or food.
- However tempting, don’t immediately bail your child out at the first sign of financial trouble or they’ll never learn to budget!
Many parents are concerned about the impact part-time work could have on their child’s studies. But, done in moderation, it’s a great way of bringing in some extra income and increases your child’s employability when they graduate.
The Student Finance package is designed to cover essential costs such as tuition fees, food, travel and accommodation, but it does not account for life’s little luxuries.
By working part-time, your child can earn extra money, meet new people and learn new skills. They can also include any work experience on their CV which could impress potential employers. Your child will need to think carefully about whether this is a feasible option for them – it will depend on their course and other demands on their time.
You may think that student jobs pay very little, but remember that your child is entitled to the minimum wage if they are over 18 years of age. Other potential advantages include employee discounts (in shops) or free food and drink (in restaurants or bars). Working in a bar is a popular choice for many students as it allows them to continue socialising but saves them from spending their money on the other side!
Yes students have to pay tax just like everyone else. However, everyone has a personal allowance which means they can earn a certain amount of money before they have to pay any tax. Most students that work part-time earn less than the personal allowance so they need to ask their employer for a P38(S) form to ensure they are paid tax free.
Example budget planner:
Total A £.....................
Total B £....................
Total A – Total B= Disposable income