Pay as you learn

The first of David's three sons started university last September. His reaction is typical. "Had I realised that it was going to cost me over pounds 10,000 to fund each of them over a three-year course, I would have started planning well in advance." Thankfully he had been making provisions for a retirement project. His nest egg is now being directed towards education and his planned dream has evaporated.

He is not alone in failing to appreciate that the grant system is not as generous as it once was. Research commissioned by Norwich Union back in 1992 revealed that a staggering 84 per cent of parents had no idea of the costs to parents of a degree course. Our recent straw poll confirmed that matters have not changed a great deal in the past four years.

Grants of course are still available and the full cost of tuition fees is paid by Local Education Authorities (LEAs). Student Loans are also available. However, it is the reduction in the amount of the maintenance grant for living expenses and books that shocks many parents.

This is means tested on the parents' combined residual income. This is basically gross income from whatever source, plus "benefits in kind", which is the value the Inland Revenue puts on company cars and company private health schemes less payments that qualify for tax relief, such as mortgage interest.

When the parental residual income is below pounds 16,050, students receive the full grant. Above this figure, the grant reduces as the residual income increases. Students who are the only child and are studying away from home on a standard-length course in the provinces receive nothing if their parents' residual income is pounds 32,208.85 or more. The trigger residual income for no grant increases to pounds 35,171.35 for students studying in London who do not live at home.

David initially allocated the full grant for his son's living expenses, giving him an additional pounds 200 in the first term as a "float". However, it was soon clear that this was insufficient. The insurance of his possessions, travel to and from university and the purchase of a personal computer have all been funded by David. At Easter a further outlay was required. David says: "First-year students live in hall, but next year he will share a house with others. To secure accommodation for his second year, I had to pay his share of pounds 350 of the deposit for his room in the house he decided to rent with friends."

Student Loans are not means tested. Did David's son take advantage of this top-up funding? "Absolutely - without the loan, it would have been very difficult to fund his living costs." The loans attract a nil rate of interest, but the amount advanced increases with inflation. Repayments are made monthly and begin in the April after graduation. For a three- year course, they are spread over a five-year period and repayments may be deferred if a graduate's income is less than 85 per cent of national average earnings - currently pounds l,267 a month.

It is therefore not surprising that Barclays Graduate Survey, published in April 1996, revealed that students' indebtedness six months after completion of their courses last year had risen to an average of pounds 2,930. This figure, which is a 31 per cent increase on the indebtedness of 1994 graduates, includes an average of pounds 583 owing to their bank or building society.

As the amount of loan available to each student has increased in recent years to compensate for the fall in the level of grants, the indebtedness of future graduates will rise. Indeed, a "back of the envelope" calculation for a student beginning a degree course this September, who takes full advantage of the loan scheme, shows they will graduate after three years with a loan of about pounds 4,710 if they study in the provinces and around pounds 5,800 if their course is in London.

Here are our tips for the parents whose sons or daughters are contemplating undertaking a degree course:

l The Department for Education and Employment publishes a very useful guide: Student Grants and Loans. This is an excellent outline of the system and it will prove invaluable. Copies are available from the DofEE Publications Centre, PO Box 6927, London E3 3NZ, telephone 0171-510-0150.

l Obtain grant forms from your Local Education Authority. Extra allowances on the basic grant are available if you have more than one dependent child, if the course is for more than 30 weeks and three days and for disabled students. General details are given in Student Grants and Loans and specific information is available from your LEA.

l If you definitely know that your residual income is above the limit for a maintenance grant, there is no need to complete the grant assessment form, but the general application and college acceptance form must be completed for tuition fees to be paid. If you are in any doubt as to whether a maintenance grant will be paid, seek guidance from your LEA. Early completion of the forms will ensure any grant awarded will be paid on time.

l As students receive preferential rates when borrowing, it is cheaper for them to borrow than for the parents. Of course the greater part of a student's expenditure falls at the beginning of term, whereas your income could be regular. Should it be necessary to temporarily finance some of your contribution, a revolving loan facility secured on your home will be cheaper than an overdraft and more flexible and less expensive than a personal loan.

l It is essential to draw up a budget. This cannot be done until a place on a course is confirmed, as accommodation costs vary enormously throughout the country. The cost of travel is also an unknown variable.

Funding offspring through university is costly, but, as one wag remarked, "if you think education is expensive, try ignorance."

Making ends meet

The maximum basic grants for the academic year 1996/7 are:

Hall or Lodgings London Elsewhere pounds 2,105 pounds 1,710 Parental Home pounds 1,400

Maximum student loans for the academic year 1996/7 are:

Hall or Lodgings London Elsewhere pounds 2,035 pounds 1,645 Parental Home pounds 1,260

Loans for the final year of study are about 25 per cent less than these figures.

NUS estimated average student expenditure for the academic year 1995/6

London Elsewhere Rent pounds 1,857 pounds 1,516 Fuel pounds 140 pounds 140 Food pounds 1,110 pounds 933 Laundry pounds 90 pounds 90 Insurance pounds 86 pounds 78 Clothing pounds 183 pounds 161 Travel pounds 610 pounds 285 Books/Eqpt pounds 409 pounds 409 Social pounds 665 pounds 533 TOTAL pounds 5,150 pounds 4,145