Long-term investment

It's never too early to start saving for your child's university years, reports Susannah Kirkman

Many parents are ill-prepared for the mounting costs of higher education, according to Pauline Cox, head of Tiffin Girls' School in Kingston, Surrey. "Parents who were students in the 1970s still anticipate that much of the cost will be met by grants. They don't realise how fast the changes to the funding system have accelerated," she says. "In fact, two parents in work in the South-east are unlikely to get any help with maintenance or fees at all. "

In spite of the Government's attempts to promote a new loans system as a fairer alternative to grants, Mrs Cox believes that many parents do not want to see their children accumulating debt.

"The American scenario where all students are in debt is not accepted here yet. While Americans seem confident that a degree will lead to a good job, parents here fear the double whammy of an expensive course followed by unemployment."

As part of a personal and social education course, Tiffin Girls' School invites staff from a high street bank to advise sixth-formers on budgeting and the loans system. The bank's advisers are also on hand at the school's higher education evening to help parents of sixth-formers.

But according to Simon Bond, client services manager at the independent financial advisers Towry Law, effective financial planning should start far earlier. He recommends that, to achieve a decent return, parents should start saving at least five years before their child goes to university.

"The ideal is to start thinking about a monthly investment before children enter their teens, so that a decent lump sum can be accumulated," he says.

Anyone who has missed the boat, however, could still start investing to provide a lump sum which would pay off the debts accumulated by the end of a university course.

If you have five years in hand, a TESSA (tax exempt special savings account) will give quite a good return, even if you invest a fairly modest amount, Mr Bond suggests. If you have longer to plan, a PEP (regular investment personal equity plan), could be the answer.

As equity-based PEPs can go up as well as down, shrewd investors should switch to corporate bond PEPs around two years before the money is needed; although equity-based PEPs will perform better in the long-term, corporate bond PEPs are more secure as the dividend is determined by prevailing interest rates, rather than by the company's performance.

If you are planning 10 years ahead, think about a with-profits endowment, says Simon Bond. These are not tax-free but they are less volatile than PEPs.

Alternatively, just before your child's university course is due to begin, increased pension contributions to a personal pension plan or to an FSAVC (free-standing additional voluntary contribution) contract could decrease the family's total residual income, thus increasing the student grant.

Maurice Fitzpatrick, senior tax consultant at the accountants Chantrey Vellacott, suggests that anyone due to retire while their children are studying could take part of their pension as a lump sum and use it to repay student debts. But he also urges families to take full advantage of the Government's student loans, as the interest rates charged are linked to inflation, and are far lower than those of commercial lenders.

Parents aren't the only ones worrying about student debt. As many heads can testify, many sixth-formers are taking increasingly demanding part-time jobs in the hope that they will eventually be offered vacation work by the same firms.

Stan Grue, head of the Forest School in Wokingham, says: "Sixth-formers are telling me things like, 'I don't want to be too much of a burden to my parents at university,' or 'I don't want to end up with massive debts'.

"Ideally, we would like upper-sixth-formers to give up their part-time jobs in January, but pupils know that if they work right through their upper-sixth year until May, they are more likely to get a job from July until October so that they can save some money for university."

Pauline Cox says that many of her sixth-formers are now under pressure to work at least one evening a week, as well as one full day at the weekends.

"They are being told that they won't be able to keep their Saturday or Sunday job unless they are prepared to do evening work." She also says that the gap year is now chiefly viewed as a chance to save up for university rather than as an opportunity to broaden horizons.

u University: Planning for the Costs is available from Towry Law Financial Services Ltd. Tel: 01753 868244 THE COST OF HIGHER EDUCATION * University grants are means-tested. A student whose parents have a residual income (gross income minus mortgage interest and pension contributions) of less than Pounds 16,450 will get Pounds 1,755 annually. If the parents have a residual income of above around Pounds 32,500, the student will get no grant at all, and parents will be expected to contribute around Pounds 2,100 a year. From 1998, there will also be a Pounds 1,000 annual tuition fee.

* For students living outside London, the National Union of Students estimates an annual shortfall of about Pounds 1,250 beyond themoney received from grants and loans. This figure rises to about Pounds 1,700 in London.

* The Committee of Vice-Chancellors and Principals estimates that students embarking on a three-year degree course in 1997 will owe Pounds 5,788 in loans and interest when they graduate; those on four-year courses will owe Pounds 7,811

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