Some students receiving their A-level results today (17 August 2017) and securing a place at university will face up to £57,000 in debt, according to Fidelity International.
The tuition fee cap currently stands at £9,250 a year with the addition of living costs, and students are to face a 6.1 percent interest rate on their loans as soon as they take it out, marking a 33 percent hike from the previous year.
Fidelity highlighted that by investing £185 a month into junior stocks and shares ISA as soon as a child is born, coupled with investment growth, parents could save their children up to £57,000 by the time they turn 18.
Investment director for personal investing at the firm, Maike Currie, commented: “It’s worth remembering that student loans are different from other types of borrowing. A sensible way of viewing a student loan is to think of it as a ‘graduate tax’. Just as higher earners pay a higher rate of income tax, so too now do graduates who pay a higher level of interest.
“Graduates only begin paying their loan off when they start earning £21,000 per annum or more, at which point they pay interest and/or repay capital at 9 percent of their income above this threshold.”
Ms Currie added: “However, the crucial difference between a student loan and any other debt is that what remains unpaid 30 years after you become eligible to start repayments will be written off. With student debt expected to exceed £57,000, it’s likely that a significant proportion of students won’t re-pay their loan in full.
“With this in mind, if you think you may work in a lower paid job, or will take time off to raise a family, it may be that you will never pay as much as the full up-front cost of your degree so it may turn out that a student loan is the best approach.”
Ms Currie recommended that parents who want to help their children with the cost of university be prepared to supplement the student loan, jump start a JISA, and talk to grandparents about gifting money, which could in turn lower their inheritance tax bill.
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