Personal Finance: Sobering truth for students

Grants are gone, means tests and loans are the reality for those entering higher education. John Andrew offers a guide to the basics

Off licences should brace themselves for a run on champagne over the next week or two as A-level results are announced. After the initial celebration, those with satisfactory grades who want to enter higher education will have to start thinking about their courses, which begin in a matter of weeks.

If they have given little or no thought to the financial aspects of university life, they will have to remedy this situation urgently. Certainly, 40something parents whose children are heading off to college will not be able to draw on their own student experiences.

Grants have been replaced by student loans and a contribution to tuition fees has been introduced. The fee contribution of up to pounds 1,025 and around one quarter of the loan is means-tested on the parents' residual income and the student's income.

The good news is that several sources of student earnings are not taken into consideration. Wages from casual or part-time vacation and term- time jobs, the first pounds 820 of their unearned income, pounds 1,000 of any scholarship and pounds 1,855 of any trust income are all ignored. Sums above these figures reduce the student's support pounds 1 for pounds 1. Therefore for most, the level of support received is dependent on their parents' income.

This is based on total gross income from whatever source plus what the Inland Revenue calls "benefits in kind", the value the Revenue puts on company cars and private medical schemes. From this are deducted payments which qualify for tax relief, such as mortgage interest and payments to pension plans. There are other small allowances, for instance, pounds 75 for other children still at school.

The amount which parents are expected to pay for their offspring's higher education is on a sliding scale. Those with a residual income below pounds 17,370 pay nothing, while parents with a combined residual income of pounds 32,000 are expected to pay pounds 1,481.

However, the parental contribution cannot be more than the maximum fee contribution of pounds 1,025 plus the maximum level of means-tested maintenance support to which a student is entitled. Parental contributions are not compulsory.

Details of the scales, allowances and additional payments can be found in the Department for Education and Employment's booklet Financial Support for Students. To obtain a copy telephone 0800 731 9133.

Parents who do not consider they will receive any help for their contribution to tuition fees should nevertheless contact their Local Education Authority (LEA) as soon as possible. This is because applications for student loans are via LEAs. An Eligibility Assessment has to be completed as well as a detailed form giving information about the parents' and student's estimated relevant income during the academic year.

Assuming that an applicant meets the residency requirements and will be attending a designated course (which means most first degree courses), the LEA will advise the amount of any contribution towards tuition fees and the level of loan for which the student may apply. Applications are made to the Student Loan Company on the loan request form supplied by the LEA. It states the loan entitlement for which an individual student may apply.

Although there is no requirement to take the full entitlement, it is advisable to do so as those who do not cannot apply for a top-up later. The loan can be paid either in three equal installments or in one lump sum. The latter course is suitable for students with will-power as they can earn interest on the sum advanced until it is needed. Those who cannot resist the urge to spend, are best advised to receive an equal portion of their entitlement each term.

Although a long shot, there are other sources of funds. There are many charitable trusts and organisations which can assist students. A fund may have been endowed in the mists of time, say, to help a young person in Bath to study Roman history at university ... not a great deal of help for the resident of Milton Keynes who wants to do architecture.

Many of the payments may be small, to help assist with the purchase of books and equipment, others can be quite substantial. Schools or libraries should have details of local educational trusts and charities. The Educational Grants Advisory Service, part of the Family Welfare Association, also has a comprehensive database of charities and trusts.

Maximum basic loans in 1999-2000

Students living away from the parental home and studying:

Full year Final year

in London pounds 4,480 pounds 3,885

elsewhere pounds 3,635 pounds 3,150

Students living in the parental home pounds 2,875 pounds 2,510

NOTE: London means the City of London and the Metropolitan Police District. The basic loan covers an academic year of 38 weeks. An extra amount of means-tested loan is available for each extra week. The rates are pounds 84, pounds 63 and pounds 44 respectively per week. If you contact the Educational Grants Advisory Service (EGAS) outlining your financial situation and subject, it will send details on how to approach charities. Send an SAE to: EGAS, 501-505, Kingsland Road, London, E8 4AU (0171-254 6251)