Parents' Guide: Large fee increases - and the worst is yet to come

Times are tougher but if your child really wants to go to university do not let the thought of finding more money or having a huge debt hanging over their head put you off, writes Gwenda Thomas. All the advantages of a tertiary education are still there and a light is to be seen at the end of the tunnel: means-tested assistance and a rise in the (interest-free) student loan. Do your sums

The time for arguments is over. It is going to happen. The majority of students starting university this autumn will have to pay pounds 1,000 per annum towards their tuition fees. That is another pounds 3,000 to pounds 4,000 to be found. If that sounds horrendous, there is worse to come. The maintenance grant has been cut by over half and is being phased out all together next year.

But if your child really wants to go to university, do not let the thought of finding more money or a massive debt hanging over your head put you or them off. All the advantages of a university education are still there; as a graduate their earning potential is greatly increased, and though things are tough, they are not quite as grim as they seem.

Firstly, how much of the pounds 1,000 fee you actually pay will depend on your income or, if they are married, the income of their husband or wife. This is means tested and those from less well-off families will pay nothing.

The student loan for new students has been increased by pounds 1,000 per annum this year to cover the shortfall in maintenance. So new students will have the same spending power as existing students.

Thirdly, the student loan is probably the cheapest money you can borrow. While it is index-linked to inflation so they will have to pay back more than they borrow, it is interest free.

Although their eventual debt will undoubtedly be bigger than previous students', the new pay-back system is much less painful. The money is to be collected by the Inland Revenue, so will be taken from their salary at source. Repayments will start when they are earning over pounds 10,000 per annum and are set at nine per cent of their marginal income above this threshold. So for example, if their salary is pounds 12,000 then repayments will be around pounds 15 a month. This would increase to pounds 60 a month if and when they are earning pounds 18,000. Total maintenance help for students amounts to pounds 4,370 in London and pounds 3,545 in the rest of the country. Figures in Scotland will be slightly less because of a different arrangement for travelling costs. The missing element here is parents. What are you expected to contribute? That will depend on your residual income. This is assessed by taking your gross income, for income tax purposes, and subtracting a number of allowances such as certain interest payments.

Once this figure has been established, how much the Local Education Authority will help towards fees and maintenance will be assessed, and then parents are expected to make up the shortfall.

If you have just one child at university then the maximum you can be expected to fork out for maintenance and fees is pounds 2,225 if your offspring is studying in London and pounds 1,810 if studying elsewhere. Next year the contribution towards the fees will stay the same but the grant will disappear and students will get the equivalent as a loan. But again, this portion of the loan will be means tested so parents will not be let off the hook.

Students who gained a place in university last year but deferred entry until this year will be treated as existing students and will not have to pay fees. Sandwich students who take a full year out during their course, will find their fee contributions reduced to pounds 500 during that year but students on shorter placements will pay the full sum of pounds 1,000.

Additional help

New students in financial difficulty can apply for a new hardship loan of pounds 250 per year. But remember it is a loan and will add to their debt.

In addition, all colleges receive what are called "access funds". These are sums of money to help students in serious financial trouble. This year the total amount available has been doubled to over pounds 50m. The maximum amount given to a single student is pounds 3,000, but most get a great deal less than that.

Paying fees

While parents are expected to cough up for fees, responsibility for paying them is actually the student's and if they are not paid, then they are in danger of being sent down. Each university has its own system of payment and will send details of the arrangements before the first term starts. They will not expect the full amount on the first day, and most universities will offer flexible payment arrangements.

Now the precedent for paying fees has been set, will the government be able to resist dipping into the honey pot for yet more? It has said: "Fees are unlikely to go up more than the rate of inflation" which in anyone's language has to mean yes.

Making the money go round

Whatever subject they decide to study at university, money management is going to be one of the most important skills they learn. The amount of cash available to them is, by anyone's standards, barely survival rates and to make ends meet they will need to do some skilful budgeting.

Students should start by getting an idea of what their income and expenses are going to be. Parents will need to find out from the LEA just what they are expected to pay towards maintenance and fees - if any, and then decide how much they are actually prepared to contribute.

Recent statistics from a Barclays survey amongst students show some 26 per cent of parents do not fully pay their share, while another 53 per cent pay over the odds.

Equally important, is how that money is going to paid to the student. Will it be monthly, termly, when they have a major bill or when you can afford it? Money will be needed for books, equipment, deposit for accommodation, electricity, the return fare to university, stocking up a food cupboard, computer, duvet, bed-linen, towels...every little helps.

Major expenses

Accommodation is the major outlay for all students. Most universities will offer first-year students the option of a place in their halls of residence - take it. Halls of residence may not seem a cheap option - full board is from around pounds 50 to pounds 85 a week depending on the university - but whatever happens, the student will have a roof over their head, probably two meals a day and no additional bills.

If this does not appeal, your universities will have accommodation officers who will not only know the going rate for rented accommodation in the area, but will probably have some suitable properties on their books. Cost of a shared property will be somewhere between pounds 35 and pounds 70 a week. They should not expect to find a home from home. As Vicky, from the University of Durham put it: "I grew quite fond of the slugs ambling across the living room carpet".

Filling the money vacuum

Students are getting more resourceful as the financial climate gets tougher. This is the reassuring finding of the most recent survey carried out amongst students by Barclays. Some 50 per cent of first-year students start university with savings of over pounds 1000. It is essential for students to have money up front when they arrive at university. The grant will not be paid until they get there and can be delayed. And they can only apply for a loan once they are at university and the process takes time. The first days at university can be expensive, not least because of the social whirl. Parents may need to help out here.

Applying for a scholarship or bursary

Some universities are well endowed. Parents can try their employer. A surprising number of companies have special trusts set up to help with education. When you have an idea of your expenses, draw up a list with the student's income on one side and essential outgoings like rent, fees, fares, food, books and equipment on the other. Then draw a line under it and total it up. You can now see how much, or little, they have left over for incidental expenses such as socialising and entertainment, clothes, hobbies and holidays. The student should think through what they would spend their money on in detail, not forgetting their vices. My research amongst students revealed "chocoholics" spending up to pounds 360 a year, "cinemaholics" around pounds 480 per annum and even a "paperbackholic" with a bill of over pounds 600 per annum. As for smokers, over pounds 1,000 was a realistic figure.

Investing for the future

If parents are thinking of fully funding their student son or daughter, it is worth remembering that the student loan is probably the cheapest money that can be borrowed long-term. Astute students, who find they do not actually need the student loan, are taking it out anyway and investing it in a high-interest account so it actually makes them money and is there should they need funding later on, possibly for a PhD, when they will not be eligible for a loan.

Take proper advice before doing this.

Additional help for parents?

Some universities may have special financial arrangements for parents to borrow money. De Montfort University for example has linked up with the Alliance & Leicester to provide a special account whereby parents can have access to a reserve of cash for crunch times like the start of the academic year.

Theft watch

Theft is a major problem for students. They have expensive and desirable chattels such as computers, TVs, videos, stereos and burglars get to know which are student houses. Parents should check to see if students are covered by their contents insurance and if so, for how much. The Woolwich's "Homewise" policy, for example, provides pounds 3,000 of cover. Otherwise add another pounds 40 to pounds 90 to your budget.

Money run out?

But what do you do if your money runs out? Do not panic! But do not sweep the matter under the carpet.

Students should get in touch with the student welfare officer at their university as there are hardship funds they can tap. Or contact the bank's student adviser at the university branch.

And now some tips for students

Before you can start budgeting you need somewhere to keep your money.

Banks and a building societies are generally very keen to attract students' accounts because they see them as potential high earners and many will offer freebies as an enticement. This year, for example, Barclays is offering a free mobile phone. These are worth studying, but shop around and ask the following questions before you decide.

Do I get a free student overdraft facility? If so, how much?Some banks give as much as pounds 1,800 which can be a life saver when strapped for cash

How much interest will I earn if I am in credit?

If I want to arrange a larger overdraft what will the interest rate be and will I be charged an arrangement fee?

If I am overdrawn without consent how much will I be charged for the unauthorised balance and bounced cheques?

If I am in debt when I graduate how long will I have to pay it off and what will the interest be?

What is It Going To Cost?

EXPENSE LONDON OUTSIDE LONDON

Fees pounds 1,000 pounds 1,000

Rent 2,340 1,679

Fuel 130 130

Household goods

and food 1,203 1,011

Laundry 97 97

Insurance 92 92

Travel 661 309

Equipment

and books 443 443

Clothing 201 174

Leisure 721 578

TOTAL: pounds 6,888 pounds 5,513

Where does the money come from?

Fees: pounds 1,000, payable by parents or LEA

Grant: pounds 1,225 (London), pounds 810 (outside London), LEA or parents

Maximum loan: pounds 3,145 (London), pounds 2,735 (outside)

Shortfall: pounds 1,518 (London), pounds 968 (outside)