As a new academic year approaches, many young people leaving school will head off to university with a mix of excitement and trepidation. The cost of further education continues to rise, and many students are left with debt that can be difficult to shift. Early financial planning can make a real difference. We are increasingly seeing grandparents and other older relatives who wish to help fund education costs of younger generations, easing the financial burden on their children, while carrying out Inheritance Tax planning at the same time.
University education comes with a substantial price tag. For standard full-time courses, tuition fees are subject to a cap of £9,790 per year, and these costs are set to rise each year in line with retail price inflation. As a result, a typical three-year degree could leave a student with over £30,000 of debt for tuition alone.
Additional costs, including accommodation, food, travel, course materials, and entertainment, significantly increase the financial requirement. According to the UCAS 2023 Student Lifestyle Report, accommodation in halls of residence can cost up to £175 per week, and the average student spends £219 per week in living costs. Over 40 weeks a year, this adds up to a further £15,700 per year on top of the tuition fees.
Loans are available for full-time students. While Tuition Fee loans cover course fees, Maintenance loans, which are means-tested on household income, rarely cover the full cost of living. For the 2026/27 academic year, Maintenance Loans have risen by just 2.7%, with the maximum loan available to a student living away from home and studying outside London being £10,830. Given the average cost of accommodation and living, this leaves a widening gap that families often need to fill themselves.
Taking the maximum tuition and maintenance loans each year for a three-year course starting in 2026 could, therefore, leave a graduate with debts in the region of £62,000. For those starting courses since August 2023, student loan repayments only begin once earnings exceed £25,000 a year; however, interest applies to the outstanding balance, with the rate of interest linked to increases in the retail price index. This means that the debt does not erode over time due to inflation, which is the case with other debt, such as mortgage loans.
Building a university fund tax-efficiently
Most parents would want to help their children with the burden of student debt but further education often coincides with other competing financial pressures. Parents are not the only ones who can help, though. We are increasingly seeing grandparents look to gift funds to grandchildren earlier in life, a trend that is likely to accelerate as a result of the changes to pension legislation next April (where unused pension funds become potentially liable to Inheritance Tax).
As with most financial decisions, having a structured plan in place can help ensure funds are passed between generations tax-efficiently. Through sensible asset allocation and portfolio structure, investments can target growth to meet the funding requirements.
Intergenerational planning
For such a plan to work, families will need to set up and fund sensible investment plans together. As a Junior ISA automatically belongs to the child at 18, an element of trust is needed to ensure that the accumulated savings are used for the correct purpose. If parents and grandparents wish to exert greater control, a Discretionary Trust could be an alternative way to build a fund to cover education expenses. The decision to release funds to a beneficiary rests with the Trustees, and whilst a Discretionary Trust may not be as tax-efficient as a Junior ISA, Trust planning has wider applications beyond covering the cost of further education.
Expert advice
Our experienced advisers can provide independent and holistic advice on how best to fund further education expenses and regularly work across family generations to establish a cohesive and tax-efficient plan. Contact one of our advisers to discuss your family’s plans.
