• • From September 2012, the cost of tuition fees for many courses in England and Wales will treble

    • Student loans will also be costlier, and…

    • Most employed graduates will be repaying student loans through a 9% levy.

    Whether you're a parent or a student, it's never too early — or late — to start saving for higher education. Here, we'll give you some pointers.

    Why start saving now?

    Because...
    ...tuition fees are trebling
    Tuition fees for 2011/12 are £3,375, per annum, but come the 2012/13 academic year they'll rise to a maximum of £9,000 — and that doesn't apply to a few courses, either. Nearly ¾ of universities intend to charge £9,000 for some courses — and that figure is rising as more institutions reveal their intentions.

    ...student loans will be costlier
    The hike in tuition fees has attracted all the headlines, but student loans will also be more expensive. Currently, the rate of interest charged on a student loan is linked to the rate of inflation, the Retail Price Index (RPI). So, at present, once students start repaying their loans, they're only paying back, in real terms, how much they've borrowed. However, from September 2012 interest charged on student loans will be at the rate of inflation plus 3%. This mean that if, say, the rate of inflation is 4%, you'll be borrowing money at the rate of 7% from the Government.

    ...there's a 9% levy on graduate pay packets
    Once graduates start earning more than £21,000 per year, they'll have to pay back any educational loans (plus interest). Under Government regulations, 9% of a graduate's income above £21,000 will go towards repaying their student loans. (The debt is wiped clean after 30 years or if the loans are repaid, whichever comes first.)

    The upshot? Not only will 2012 undergraduates be borrowing more money than their predecessors, but they'll be paying back costlier loans over a longer period. That's why saving for higher education has never been more important. Paying for University can't prevent students from getting into debt, but if you follow our suggestions, parents and students may be able to reduce the amount they'll have to borrow — and that's no bad thing

    So what can you do?
    Quite a lot actually. The earlier you start saving, the better, even if you put aside a small amount. The reason why even a trivial amount is useful is because of the wonders of compound interest — ie, the way reinvested earnings build up over time (right).

    Don't feel daunted. Simply aim to put aside what you can. Below are some financial products that could help parents and students save for university. We've explained how they work, the ways they differ, and the pros and cons of each one. That way, you'll be able to make an informed choice:





  • "£22,613 — the yearly cost of studying in London"


    The NUS estimate that average student expenditure for the 2010/11 academic year is £16,613 for those studying in London and £15,523 for those outside the capital. These figures include the current tuition fees of approximately £3,000 per year, plus living costs.

    Taking these estimates as a guide, for the 2012/13 year those figures will, for many, rise to £22,613 for students studying in London and £21,523 for those studying outside the capital.

    And, remember, this is just for one year of a three- or four-year course.


    How the 9% levy works


    If you're a graduate who lands a job that pays, say, £27,000 per year, you'll have to pay 9% of £6,000 — an extra £540 per year. And, remember, that 9% tax is in addition to income tax (basic rate 20%) and national insurance contributions, which will also leave your pay packet each month.


    Wonders of compound interest


    Well, if you invest £10,000 at 7%, you'll have £10,700 in one year. Now if you continue to earn that same rate of interest (7%) the following year, your investment will grow to £11,449 by the end of the second year and £12,250 by the third... and so on. So you can see how, by putting aside even a modest amount, your savings can grow significantly.

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