Martin Lewis: Ouch – how much should parents give or save for their children's university costs?
If you're a parent thinking about how you might be able to help your child with their university costs, MoneySavingExpert.com's founder Martin Lewis has an important warning for you, which he shared in the latest episode of ITV's The Martin Lewis Money Show Live. Watch the clip below or read on to see what Martin said.
Update: 20 June 2023: MoneySavingExpert.com founder Martin Lewis has written a detailed new guide explaining the huge changes to the English student finance system for those starting university this September (and their families).
See Martin's Six need-to-knows about ‘Plan 5’ English student finance.
ITV's The Martin Lewis Money Show Live – Tuesday 31 January 2023
The clip above has been taken from The Martin Lewis Money Show on Tuesday 31 January 2023, with the permission of ITV Studios. All rights reserved. Watch the full episode on ITVX.
There is an implied parental contribution towards university living costs
Angellica Bell (Martin's co-presenter): "If parents can help a little bit with uni costs, what's the best way?"
Martin Lewis: "Okay. First of all, the thing you need to understand is what you should be saving for university. So here we go – how much to save for university. And university might not be right for them, but it is best to be aware just in case, and possibly saving just in case if you think it's likely.
"Now, this ISN'T about tuition fees. If you have to pay them, for most students they're paid automatically by the Student Loans Company and they're repaid if you earn enough after you leave.
"But this is about thousands of pounds of living costs. Because for most under-25s, the living loans and all grants they get are means-tested based on household income – which, let's be really straight, for under-25s is a proxy for parental income.
"So in England, Scotland and Northern Ireland, that actually means there is an implied state, implied parental contribution towards university cost; because the total amount the state gives individuals depends on that means test, and it is reduced the higher the parental income. So how are you meant to make up the gap? Surely they're saying parents need to pay the gap. That's logical, isn't it?
"In Wales, by the way, the means test – everybody gets the same amount. All the means test does is say how much is a grant that's not repayable, and how much is a loan that is repayable. But it's different everywhere else, and there are free online calculators to work it out for you in your situation."
In England, the living loan students get starts to reduce from £25,000 in household income
"But let me give you an example of the scale of this with one of my graphs [see below]."
"Here we go; let's do England first. This is for someone living away from home parental contributions. Now, the first thing to understand: how do I work out what the parental contribution is? My definition. I take what the full loan would be for someone who has no income at all, which in this particular case, living away from home, not in London, would be £9,706 this year.
"And they'd get all that from the Government and no parental contribution. As you'll see, from £25,000 household income, then what starts to happen is the amount that they get from the state reduces. And so the red line at the bottom [of the graph] indicates how much the parent would need to give so that they got that same £9,706."
[Martin addresses audience member: "You're mouthing now, 'It's a lot.' Is that what shocked you? Yeah, it's a lot. No, no, it's not that number. That's how much they're earning."]
"But what you see is once you get to £60,000 of household income, then, here, that's £5,200 a year that the parents would have to contribute to put your child on the same level as someone whose household had no income.
"And that's for one year. Most courses in England are three years; three times £5,200 is £15,600. So if you have a ten- or 12-year-old now and you're on that type of income or even a bit less, you need to start thinking, "How am I going to save that?" So the money is put aside for their future."
In Northern Ireland and Scotland, the maximum parental contribution is lower
"I'll quickly do Scotland and Northern Ireland too. Let's change that around [the graphic - see below].
As you'll see, the total amount of funding given is lower. Now, in both of these you get, depending on how much your parents earn, you get some grant and some loan. I've added them together. That gives me the total funding based on someone whose parents had no household income.
"You'll see that it starts reducing much sooner at just £20,000 and hits the max here at around £35,000 income and above [where] you get onto a stable amount. But the total parental contribution is lower. The maximum in Scotland, based on this analysis, which are my numbers, is around £3,000 a year. The maximum in Northern Ireland is around £1,600 a year parental contribution.
"I go back to the original question, which is "How do I save?" Well, the start point is you work out how much money you're likely to need. And remember, these are on current prices, so these are likely to go up with inflation and other things that move, although they haven't put it up with inflation this year [for the academic year beginning September 2023].
"And then you start to work out how much you need to put aside a year, depending on the age of your kid, and again, there are calculators that'll do that for you."