The system for paying university tuition fees is changing just as the new Junior ISA is coming in. But does the change in tuition fees mean that one of the main reasons parents save for their children, to pay for higher education, is no longer worth doing?
Tuition Fees Currently
Current tuition fees are set at £3,375 a year, and the majority of university students pay this amount. A student loan can be taken out to pay for this or it can be paid up front, either by the student or their family.
How Student Loans Currently Work
Students are able to borrow money from the Student Loan Company to pay for tuition fees and living costs, with the amount they can borrow dependant on their circumstances. This starts to be paid back once they have graduated and are earning over £15,000 a year. Beyond £15,000 they pay 9% of their earnings towards repayments of the student loan with this automatically coming out through the tax system each time they get paid. Someone earning £20,000 a year, for example, will pay back £450 each year (or £37.50 each month). It is effectively like paying 9% extra in income tax and it is paid until the loan is fully paid off. If a graduate’s earnings fall below £15,000 they don’t have to pay anything until it rises above this again.
Tuition Fees from 2012
There has been much controversy over the changes that will be coming in for students starting university from 2012. Fees will no longer be the same for everyone, with universities having more choice and being able to vary it between different courses. Universities will be able to charge a maximum of £9,000 a year, which will be £27,000 for a three-year course.
Student Loans from 2012
As well as changes in the cost of tuition fees, there will be changes in how they are paid for by students. The loan system will still exist but with some slight changes. Every student will need to take the money out in the form of a student loan and will not be able to pay it upfront. This has been done to avoid the argument of it being more affordable to those from wealthy backgrounds. The student loan will still be paid back in the same way but there will be a higher income threshold before it has to be paid back. Nothing will need to be paid back until graduates earn over £21,000, £6,000 more than is currently the case. Whatever a graduate earns, they will therefore be paying back less that if earning the same amount under the current system. The downside is that they will be paying it back over a longer period because they will start paying it later and will have borrowed more. If it is not paid back after thirty years the debt will be written off. The argument is that those who are paying it back will be those earning enough to be able to afford it.
Until now the emphasis has often been on parents to help their children pay their tuition fees. This will no longer be possible when the changes come in because everyone will need to take out a student loan.
Saving for Children
Many parents have chosen to save for their children’s education. Do the changes mean that this was a waste, and will it be pointless for families in future?
The answer to this is no. It will still be a great helping hand as the cost of higher education is not just tuition fees but living costs. For example accommodation, food and bills all need to be paid for. This means savings for children could be just as much of a help as it is now. This will make the new Junior ISA attractive to many parents.
Andrew Marshall ©