How will I afford my degree?

Now, it seems, is not the best time to become a university student.

Even if you're lucky enough not to be among the thousands denied the hallowed halls by the new admissions cap, you could study for at least three years only to find at the end that jobs are scarce. And there's the issue of money – how to afford tuition fees, accommodation, books and still keep eating.

The question of who – student, state or employer – should pay for higher education is not new, but with the average graduate this year facing a debt of more than £20,000 and universities claiming that Britain is in danger of falling behind international rivals if their funding is not increased, plus the slashing of public spending, financing university is again at the centre of the political debate.

Legislation for the present system went through Parliament in 2004, and students from 2006 became liable for top-up tuition fees of up to £3,225, covered by a government loan and paid back after graduation. This is now under review. The Business Secretary, Vince Cable, an opponent of top-up fees, says he likes the idea of a graduate tax, which would see the Government pay fees straight to the universities and graduates pay a higher rate of taxation, once in employment. Such a system is considered by some as fairer since the tax rate would depend upon earnings, whereas, currently, a fixed amount is paid back, whatever the graduate goes on to earn. "It surely can't be right that a teacher or careworker or research scientist is expected to pay the same graduate contribution as a top commercial lawyer or surgeon or City analyst whose graduate premium is so much bigger," says Mr Cable.

A tax could mean that low earners end up paying less than now for their degrees, while those with high incomes would pay more.

The idea has received mixed reviews: the National Union of Students is in favour, as its president, Aaron Porter, explains: "A graduate tax system would give students a breathing space when they graduate, unlike the current system which starts loading them with interest even while they study. At a time when the jobs market for graduates is more hostile than ever, the graduate tax system will mean they are paying only what they can genuinely afford."

But universities fear they will see a slump in funding lasting several years until enough graduates start paying the tax, a fall that they say will further weaken the UK's skills base. "We have seen significant staffing losses in universities, as financial pressures force institutions to reduce expenditure. It is vital for the future of the UK as a leading knowledge-economy that spending on science and research is protected: other countries are pumping money into these areas because they are the key to future economic prosperity," says Professor Steve Smith, the president of Universities UK, which represents 113 institutions.

But rising tuition fees, however they are paid, are further restricting social mobility. Studies have shown that since the introduction of top-up tuition fees, teenagers from poorer families are spurning university because of fears of debt, and a recent student survey shows that nearly half believe it will take them a decade to pay off what they owe. The survey, by the Association of Investment Companies (AIC), found 8 per cent believed they could be in debt for more than 20 years. And some 18 per cent of students said that they would put off or postpone postgraduate study to avoid the extra debt.

Although all universities offer extra financial help to students unable to meet the costs of tuition and day-to-day living, from bursaries, grants and scholarships linked to particular talents in, say, music or sport, anyone having to rely on such extra support will still struggle. The best option is to start saving for a stay in academia as soon as possible – ideally from birth.

But David Kuo, a director of the Motley Fool website (fool.co.uk), says there is no need for parents with young children to dismiss the idea of university for their offspring. "It could cost around £40,000 in 18 years' time thanks to inflation. It may even be more, if colleges are allowed to hike prices further. But don't despair. You have one thing on your side that no government can ever take away – time. Eighteen years is a long time to build a college fund, provided you are prepared to save little and often," he says.

"With the figure of £40,000 in mind, you should try to put away £60 a month into a stock market index tracking fund while your child is still in nappies, and continue to do this steadily as your child grows. Make sure the money is in an ISA to ensure that the gains you make are free from tax. Check on the pot occasionally to make sure you are on track. If you think you may fall short, then increase your payments. But if you hit your target early, then put the remaining contributions into a cash savings account to safeguard your pot against any sudden falls in the stock market."

Kate Moore of provider Family Investments also stresses "the earlier, the better" when it comes to a college fund, and says parents should make use of their child trust funds while they still exist. "It can be hard to imagine your newborn at university, but it can make such a difference," she says, "Had CTFs been around 18 years ago, saving £65 a month would now make £23,000, the average graduate debt. But if you had waited until your child was seven to start saving, you would've had to put away £130 a month." One of the benefits of CTFs is that grandparents can also contribute, which considering the AIC survey shows that 12 per cent of parents said grandparents would make some contribution, this could be a valuable resource. However, future parents won't have the option of CTFs, as the coalition government has said that it will stop making initial contributions into CTFs in January.

But Ms Moore says that most parents don't imagine mortar boards when they look at their newborns. It's the move to "big school" at 11 that tends to trigger that response. "Even then, it's not too late. You still have 10 years until graduation. Investment or unit trusts set up in the child's name are still worth it."

Ms Moore is also keen to stress what parents should not do. "Please do not put money just into your child's bank account to save that way. It's just too tempting to use it for the here and now." She says the same to students, once in control of their matured CTFs or other investments, and with money they may have earned on summer jobs. "Put it into a tax-free ISA, safe from temptation, and you can put up to £10,200 a year away in a combination of cash and equities such as investment and unit trust funds."