Life
Our son’s off to university, how do we help out?
Our money maven is here to answer your personal finance questions
August 27, 2021 11:35
Our money maven is here to answer your personal finance questions
August 27, 2021 11:35QMy son has just got a place to study law at Exeter University and we are wondering about the best way to finance his studies. He has applied for a student loan to cover the tuition fees, but should we lend him the money for his rent and living expenses or get him to take out a maintenance loan? What about a student bank account?
ACongratulations to your son, that is a great achievement. Being a student is an expensive business though. According to the latest government statistics, students graduating last year had an average debt of £45,000. But that doesn’t mean to say they will have to repay £45,000, in fact only a quarter of students are expected to pay back their loan.
Repayment of the loan starts once the graduate earns more than £27,295, and then payments are 9 per cent of the amount above this. Since your son is going into a typically well paid profession, with an average starting salary of £20,000 rising quickly once he qualifies, it is likely he will be one of the 25 per cent who would be expected to repay the loan in full.
Working on that premise, and if you can afford it, it would be better if you lent him the money and work out a repayment schedule that suits you both. The student loan attracts interest at RPI plus 3 per cent while your son is studying and then between RPI and RPI plus 3 per cent, depending on how much he earns, once he graduates. Since the best instant access bank accounts pay only 0.65 per cent before tax, you could charge him a little interest and he’d still save money.
It is also worth remembering that for many students the maintenance loan will not cover their living costs anyway. The amount they receive is based on your income, so you may well find yourselves having to help him out even if you decide not to become the bank of mum and dad. For example if your household income is £70,000 then your son would only be entitled to £4,422 in maintenance grant which is unlikely to cover his accommodation costs let alone food and drink.
If your son wants the flexibility of an overdraft then the Santander 123 Student Account guarantees a 0 per cent overdraft of £1,500 in the first three years and a free four year 16-25 Railcard. Other good student accounts include the HSBC Student Account which offers a £1,000 0 per cent overdraft in year one and up to £2,000 in year two and up to £3,000 thereafter. It also gives £80 cash plus a £20 Uber Eats voucher or a year of free unlimited next day deliveries from ASOS Premier if you use the card more than five times in the first month. NatWest offers up to £2,000 interest free overdraft (£500 in the first term) plus £50 cash and a four year Tastecard. However with the HSBC and NatWest accounts not all students will get the full amount as it depends on their credit history.
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