The end of up-front fees for students

The new funding system for students is not all bad news, whatever parents may think. Without a doubt, student debt is going to soar. Already the average debt on graduating is £13,500 and with fees of £3,000 a year to pay from this autumn, it could well tip over the £20,000 mark by the time this year's new students graduate.

But, if you can put that thought to one side, the new funding system should make studying for a degree less financially painful for both students and parents.

Under the new system there are now no up-front fees to pay; students can borrow more; there are more grants and bursaries on offer, and, except in Scotland where they have a different system altogether, parents will be expected to contribute much less than in previous years.

In fact, parents are not expected to chip in until family earnings are around £40,000 (it was £22,000 last year) and the maximum any parent is expected to contribute for one child is £1,100 (£1,540 if your offspring is studying in London). That's about half of last year's figure.

This about-turn in Government thinking is, according to Caroline Wright, director of communications at The Department of Education and Skills, because the government's funding reforms have taken "an important step in the direction of treating students as independent adults at 18. With the removal of up-front fees, parents will no longer have to contribute towards the cost of their child's course."

So what are the main features of the new funding system?

Fees

No up-front fees to pay, but from this autumn, 2006, most students starting universities will be charged fees of up to £3,000 a year to be paid after graduation. A few universities have decided to charge lower fees, but they are only a handful.

Comment: No help with fees for low-income families is available as in the past. Parents' income is no longer assessed to contribute to fees.

Fee loan

To pay the fees, students will be able to take out a Student Loan, which they will not have to start paying back until they graduate and are earning more than £15,000 a year. The fee loan will be available to all UK undergraduates - even those already on courses under the old funding system.

Comment: will result in more debt, but no student need face the danger of being slung out for not paying fees.

Grant

A non-repayable maintenance grant of up to £2,700 a year will be available to students. The amount given will be based on household income, with students from families earning less than £17,500 receiving the full amount and those with a family income of up to £37,425 receiving a partial grant. Over that amount students receive nothing.

Comment: will not actually mean more cash in hand, but less debt. For every pound students receive in grant a pound will be knocked off the amount of maintenance loan they can take out.

Bursaries

Universities charging the full £3,000 annual fees will be required to give students receiving the full £2,700 maintenance grant a bursary of at least £300.

Comment: does mean extra cash in hand for students and it could be appreciably more than £300. Many universities have decided to give larger bursaries to students from low-income families and extend the bursary offered to include many more students on a sliding scale. Figures of over £1,000 are not unusual.

Student loan

The student maintenance loan is still flourishing and in fact students will be able to take out more than ever before - up to £6,170 if studying in London, up to £4,405 for those studying elsewhere and £3,415 if living at home.

Comment: parents take note, 25 per cent of the student loan is dependent on family income, so any loan that your offspring does not receive, you are expected to provide. Family income has to be around £40,000 before you fall into this category.

Paying back loans

The debt could be colossal with loans for both fees and maintenance - £20,000 is not an excessive estimate. But, graduates have to be earning £15,000 before they are expected to start paying back their loans and then it is done on a sliding scale depending on how much they earn. Payments are based on nine per cent of earnings over £15,000. For example, at £16,000 graduates pay £7 a month at £20,000 they pay £37 a month and so on.

Comment: many graduates say payback feels more like an additional tax than a debt as payments are taken out of salary at source.

Will it be enough?

Will the amount a student receives from grants, loans and bursaries meet their expenses? Possibly not. Most students work during their vacations and it is thought around 40 per cent during term-time. Universities these days are geared up to the job scene. Most have thriving job shops, offering a wide range of jobs, with employers sympathetic to university hours. In fact, many of the jobs are in the university itself. Most students also rely on the interest-free overdrafts banks provide to tide them over between student loan payments.

Helping out

So, what is the best way for parents to help their offspring? I would suggest you should look at the problem on two levels - before and after graduation:

BEFORE GRADUATION

If you are assessed to make a contribution, pay it if you possibly can afford to, either as cash in hand or as rent, halls, bills, books. How good your offspring is at handling money should influence how you decided to pay up. The important thing is to state when and how you will give the money and stick to it. Not having the means to meet your share of a bill is embarrassing for any student, especially if it's a parent who has messed up.

If you can afford to give more, and most parents do, the first term at university is especially expensive as there are clubs and societies to join, books and kit to buy, a great deal of socialising to be done, and most freshers are unlikely to have found a job. So you may feel you should chip in. However, many students have savings when they arrive at university and it might be better to wait and see how their finances pan out.

Another expensive time is at the end of the first year when students have to find a month's deposit to secure accommodation for their second year.

The final year, when students need to work for their finals and generally can't afford the time to take a job, is another financial crunch-time

AFTER GRADUATION

There is nothing to stop parents paying a student's fees right from the start, but if you are struggling to do your share while they are studying, you can always help pay off their debt after graduation. Remember the student loan, both for fees and maintenance, is probably the cheapest money you can borrow because interest is only at the rate of inflation.

More students than ever before are wondering if university is worth all the debt. A degree is the only entry ticket to many of the best careers. The medium starting salary for graduates this summer is £23,136 according to the Association of Graduate Recruiters Survey, and graduates are likely to earn appreciably more than their non-graduate contemporaries over a lifetime - at least £100,000. Add to that the university experience, and it still seems like a good investment.

Gwenda Thomas is the author of Students' Money Matters, published by Trotman and now in its twelfth edition

The first term

Jess Nye, 19, a first year modern janguages student at Christ's College Cambridge, thought she had got her finances well taped. Before leaving for university, she drew up a budget. However, her money didn't stretch quite as far as she had hoped. "When my mobile phone and badminton racket broke in the first week, my calculations started to take a dive and I ended the term with an overdraft," she explains.

"You can't plan for uni because it is completely different from anything you have experienced before. You start with the money you have left after paying major bills like Halls and divide it by eight (weeks in Oxbridge term) and you think '£70 a week, that's great'. Then the next week you divide by seven and the next by six and so on and you find it is now £40 a week and then £20 and then minus £10 - now that is a bit scary."

But she insists that it is definitely worth going to university. She advises working during the summer after A-levels. "Work, work, work and save, save, save, because nothing will ever compare with the life you have at university."

Nye decided she wanted to try and manage without support from her parents. She took out a student loan - £1,245 a term (£,3760 pa). This is the maximum she could have based on her parents' income. She also had £480 from a policy her parents had been paying into for her education, £300 from working in her parents' shop during the summer, £120 her parents sent her when things started to get tight and £60 from selling stuff on eBay. She finished the term with a £250 overdraft.

Nye's major outgoings for the eight weeks of the first term were:

Halls inc. food: £1,012

Fees: £392

Additional food: £265

Books/stationery: £116

Socialising: £120

Fondue parties: £20

Mobile phone: £135

Sports gear plus club membership:£229

Decorating: £21

Washing/ironing/ toiletries: £92

Vices - hot dogs: £54

Based on research carried out for the new edition of Students' Money Matters

The second year

Sam Phillips, 20, has just finished his second year at St Andrews University where he is studying international relations. For the last year he has shared a flat with Dave, another second year student.

"The rent is £3,250 each for a 10 month lease," says Sam. "Halls were £2,995 with weekday food included. Pound for pound living in a flat is more expensive. But I think we probably save on socialising.

"We are both enthusiastic cooks. I'm into roasts while Dave is more a wok man. We spend about £35 a week between us on food and take it in turns to do the Tesco run. When it comes to bills they are divided strictly down the middle."

Sam estimates his second year at university cost him £6,000:

Parents pay for fees and rent: £4,500 approx.

Other expenses covered by his earnings as a bouncer in the student union bar: £65 a week.

Earnings during the vacation will pay for a holiday to India and the upkeep on his car.

Fares home (he lives in Staines, Middlesex). By sharing a car with friends, he has got these down to £25 each way.

He is entitled to around 75 per cent of the student loan which he takes but, as he explains, "That is stashed away in an ISA."

Based on research carried out for the new edition of Students' Money Matters

Fees

This is how fees look for most students:

UK REGION

2006/07

England £3,000

Wales** £1,200

Scotland (Non Scottish students) £1,700

Medicine in Scotland (Non Scottish students) £2,700

Northern Ireland £3,000

2007/08*

England £3,000

Wales £3,000

* Likely to rise with the cost of inflation ** New funding systems deferred until 2007

(source: DfES)