Funding the Costs of Education - Are You Prepared?
Recent research by HSBC found that more than 70% of parents contribute to the cost of their child’s education, whether at school, college or university level. However, compared to parents in other countries, UK parents are relatively poor at planning ahead for the cost. A quarter of UK parents regret not saving earlier and one in five say they wish they had saved more.
Doctors who have time on their side before their children head to university or fee-paying schools have options for long term savings and investments including ISAs, National Savings & Investments and investment bonds.
Having a fund available to cover the cost of university can save your child from having to take out an expensive student loan. According to The Sunday Times, interest rates on today’s student loans mean that until a graduate is earning £51,000 their loan repayments are only going towards interest, not the underlying debt. Graduates will therefore make loan repayments of 9% of their salary over £21,000 for decades.
Doctors whose children are already in the position of having a student loan on the basis outlined above may be wondering about the benefits of helping them pay it off early to avoid those interest charges. However, counter-intuitively, it may be better to let the student loan remain outstanding. This is because any outstanding student debt is written off after 30 years. The Institute of Fiscal Studies estimate that, on average, 31.3% of an individual’s student loan will be written off. So, unless the graduate in question will be a high earner from the start and remain so for the foreseeable future, you may be repaying debt that would otherwise be written off in future.
Please note this article does not constitute personal financial advice. For advice on your personal situation please contact Richard Higgs CFP FPFS on 0117 966 5699 or email@example.com.