How to save for university

Saving for your child’s university education can seem daunting given the soaring cost of living in the UK, but it doesn’t have to be difficult. 

On this page, we’ll explore the costs you might need to cover as the parent of a university student, and the financial help available to you and your child. We’ll also look at ways you can save for university so that your child doesn’t have to worry about money.

Tuition fees in the UK amount to £9,250 per year, and some university courses even exceed that. While course fees are usually covered by the tuition fee loan, many students also take out maintenance loans to cover living expenses, like rent, groceries, books, and travel. When you add these costs together, a student’s university debt can be substantial. 

The exact cost will depend on where in the UK your child goes to university. Universities in England, Wales, and Northern Ireland all charge £9,250, while Northern Irish students studying at home benefit from lower fees at £4,750 per year. Similarly, tuition fees in Scotland are typically £1,820 per year, but Scottish students have their costs covered by the Student Awards Agency Scotland (SAAS).

Saving for university is not just about tuition fees - your child will need enough money to pay for accommodation and other living expenses. The average monthly living costs for a university student in the UK are £1,078, according to a recent study. Rent makes up almost half a student’s total spending, with students paying an average of £439 per month.

On top of rent, there are costs like household bills (if living off-campus), groceries, transport, leisure activities, and course materials. To have a minimum acceptable standard of living, it has been suggested that students (outside London) need savings of around £18,632 a year*. As these sums indicate, going to university can put a tremendous amount of financial pressure on a student.

The first step many people take is to work out what financial assistance is available, including student loans, as this will provide your child with a guaranteed income at university.

Student loans: Unless your child already has a large pot of money saved up, taking out a student loan is often necessary to manage university expenses. These loans come in two parts:

• Tuition fee loan: Paid directly to the university to cover tuition fees.

• Maintenance loan: Designed to cover the student’s living expenses, this is a means-tested student loan based on family income.

Students typically start paying off these loans once they’ve graduated, and repayment amounts are not like typical debt, as they are based on the student’s post-university income.

Financial assistance: You might also look into what financial assistance your child is eligible for. This can include:

• Scholarships and bursaries: Many universities in the UK offer financial schemes to assist with tuition fee costs and living costs. You can check what’s available on the particular university website.

• Financial support: Students in Wales and Northern Ireland may qualify for a non-repayable maintenance grant. Similar schemes are available to students with dependents in Scotland. Students across the UK may also be able to access a hardship fund if they are experiencing financial difficulties.

• Disabled students allowance (DSA): If your child has a learning difficulty, health problem, or disability, they may be eligible for the DSA, which doesn’t have to be paid back.

Once you’ve found out what financial assistance your child may be entitled to, you’ll have a clearer picture of the sums of money involved, and can work out how best to start saving for university.

Yes, regardless of where your child attends university, there will be some kind of means-tested loan available. If your child is under 25, for example, they may be considered financially dependent on their parents, in which case they will receive a means-tested maintenance loan based on their parents’ income. The student will then need to provide details of their parents’ earnings for student finance calculations, and the larger the household income, the smaller the loan. 

The system is slightly different in Wales, where all eligible students receive the same financial support (consisting of the maintenance loan and a non-repayable grant), regardless of family income. 

Household income includes income from investments or property, such as dividends or rental income. Any interest earned from savings must also be reported as unearned parental income for student loans.

While the tuition fee loan takes care of course fees, many students struggle with having enough money to cover the rising cost of living. And the maintenance loan often doesn’t stretch to cover the student’s expenses, leaving many students scrimping and saving. While part-time jobs can provide a welcome stream of income each month, in some cases they can have a negative impact on the student’s studies. So, given the often insufficient student loans, parental contributions can help to support your child while they’re at university.

Starting to save for university early, perhaps with a children’s savings account or junior ISA when your child is born, means there is plenty of time for the money to grow and accumulate interest. And even if they choose not to go to university, you’ll have built up a substantial pot of money that will give them a leg up as they start making their own way in life.

There’s no set amount of money you should save for your child’s university education. Some experts suggest taking the maintenance loan as a benchmark for estimating your savings goal. The reason for this is your child’s maintenance loan may be reduced due to your income, so parents are typically expected to bridge the gap. 

To give an idea of what you might be expected to contribute, the maximum student loan amount for students living away from home and outside London ranges from £6,776 in Northern Ireland to £10,227 in England. For students in England, you can use the Student Finance calculator to work out the amount of money your child may be entitled to, and how much you might need to top up to meet their living expenses.

To get started with saving for your child’s university education, you might consider your child’s age and how soon you’ll need the funds. Are they just entering their teenage years, or are you keen to begin saving from their birth? If your child is approaching university age, a high-interest savings account may be the most suitable option. This way, the funds are readily available, and you won’t face any risks that come with investments.

Because living costs vary so much from student to student and also based on location, encouraging your child to budget can also be beneficial. Budgeting techniques like the 50/30/20 rule can provide a structured way to manage their finances effectively. Having a specific goal in mind can also boost motivation as you work towards building up their university savings.

If the combined savings interest for both you and your child remains within your personal savings allowance (PSA), you won’t owe any tax. However, if you’ve already utilised your allowance or your child’s savings push you beyond it, you’ll be required to pay tax on that amount at your usual income tax rate. If you’re an additional-rate taxpayer, you don’t benefit from a tax allowance, and you will likely have to pay tax on any savings interest.

If you want to put money aside for your child’s education, one option worth considering is a fixed rate bond. These accounts typically offer higher interest rates than standard savings accounts. Once you deposit your initial amount, you won’t have access to it until the end of the fixed term, which is typically between six months and five years.

Opening a fixed rate bond for your child’s education lets you accurately estimate the value of your funds when it’s time to pay for their studies. Plus, knowing that this money is locked away for a specific purpose helps avoid the temptation of dipping into your savings.

Let’s see how much you could earn with an initial deposit amount of £10,000 with varying interest rates over different timeframes:

While the difference between 3 and 5% interest may seem minimal, over the 15 years that you could be saving for your child’s education, it can work out to £3,000. This shows the importance of choosing a competitive interest rate and starting to save for university as early as you can.

On the Raisin UK marketplace, you can easily calculate your potential returns by entering your deposit amount and the term that best suits you.

By registering for a free Raisin UK Account, you have access to a variety of savings accounts to build up your child’s university funds. Whether you prefer locking your cash away or having easy access, you’ll find an account to suit your needs.

*https://www.lboro.ac.uk/media-centre/press-releases/2024/may/students-need-18600-for-decent-living/