Middle Class parents 'need £16,000' for children to be comfortable at university

Middle Class parents have been warned they will need to find thousands of pounds to help students going off to university afford to cover their basic living costs.

Government loans are available to help 18-year-olds starting their university life this year, however a new analysis suggests these fall well short of the cash needed to cover essentials, such as books, rents, bills and food.

As a result, it is estimated that Middle Class parents will need to top up the loans with an extra £5,460 a year - £16,380 over three years – just to ensure their children have enough to make ends meet.

Students can apply for a maintenance loan to cover their accommodation, food, books, commuting and other general living expenses during their tenure at university.

For a student studying in England this academic year (2024-25) the maintenance loan under Plan 5 can be as much as £10,227 if they study away from home outside London or up to £13,348 for a student living away from home in the capital.

However, the size of the loan available will fall away based on a means test of their parents’ earnings, which also takes into account any income from property, savings and investments.

Once the parents’ household income edges just above £25,000, the entitlement slowly falls away. For example, if household income reaches £40,000 the grant falls away to just over £8,000. And once household income hits just under £62,350, the most a student can secure is £4,767 a year.

While parents are not mandated to make up the shortfall, the general expectation is that they will, so in theory that means parents jointly earning above the £62,350 mark need to find £5,460 a year if they want to match the loan amount of £10,227 for a student living outside London.

Even the maximum loan of £10,227 for students at universities outside of London has been condemned as inadequate. Findings from the National Student Money Survey 2024 put average student living costs at a higher £13,248 a year.

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform, said: “As a fresh cohort of undergraduates begin their university studies, many are likely to feel excited about taking the next step in their lives. Living independently away from home for the first time can be liberating but managing their own money can feel more like a burden, particularly when you consider the difficulties that the current student finance system can create.

“Almost eight in 10 students are concerned about how they will navigate their limited budgets through university as cost pressures mount, while more than half of students are going to start university already in debt. For most the likelihood is that their resources will quickly get dwarfed by eye-watering living costs extending those liabilities even further.

“With so much pressure on cash-strapped students to balance the books during their university years, the real question is how much support parents are willing to stump up to ensure their offspring can concentrate on their studies rather than take on part-time work to make ends meet.”

She added: “Many students and their families underestimate the importance of parental support to ensure the university years are affordable.

“There is no explicit stipulation that parents must plug the shortfall between what a student receives for their living costs through a maintenance loan and what those costs are. However, with household income considered the barometer for how much a student receives from the maintenance loan, it seems sensible for the state to make it clear that families are expected to help.”

Best Invest said that with no guarantee that parents will stump up the cash, students may need to find other ways to supplement their income. This can be through a part-time job while they are at university or working full-time during their holidays.

It said that some generous parents may elect to shoulder their child’s university costs in full, something that may be possible if they have planned and saved in advance. Others who want to contribute may struggle because of the sums involved: a pay-as-you-go approach, where they pay out of their monthly take-home pay, is likely to require a radical rethink of the family finances.

But it warned: “Paying university costs on the go is a risky strategy even for families with high incomes as unexpected life events, such as job loss or large, unplanned costs can eat into their monthly expenditure and derail plans to support a child through their higher education. Instead, a viable, long-term savings plan to meet university costs will prevent financial stress.”

How parents can help

A family with nothing saved up to cover a child’s university living costs are potentially in a tricky situation if they are only eligible for the minimum payout of £4,767, and many face the unwelcome prospect of taking on debt or leaving the student to fend for themselves.

Where one parent earns all the household income there is at least the potential for the non-working parent to get a job that covers the shortfall. This could be a part-time role bringing in an annual income of at least £5,460 or more depending on whether they want to match the maintenance loan or factor in the full living expenses their child incurs.

An annual income under the Personal Allowance threshold of £12,570 would mean they do not pay any tax on their earnings with the amount they earn potentially sufficient to cover the extra cost of supporting a child at university.

However, if both parents are already working, or they have more than one child at university and their household finances are already stretched to the max, then one or both parents may have to consider taking on a higher-paid role - one that bumps up their take-home pay sufficiently to cover the cost.

Save in advance

While sending a non-working parent back to work, hunting for a higher-paid job or taking on a well-paid side hustle are options parents can consider, another option is to save up in advance.

Sticking with the example of a child studying away from home who can only secure £4,767 a year in maintenance support, for a three-year course a parent would potentially need up to £16,500 to help support that child through a three-year degree depending on how generous they want to be.

A parent investing just £50 a month into a tax-efficient Individual Savings Account, which allows money to grow free of tax on income and capital gains, from the moment their child is born would make a total contribution of £10,800 over an 18-year timeline. If they achieved a 5% per annum growth rate, net of fees, over that timeline, the value of that ISA pot could grow to almost £16,000 *** – just about enough to cover that shortfall.

If a parent needs to cover the costs for more than one child, or perhaps wants to give their child a more comfortable university experience to ensure they don’t need to take on multiple jobs to supplement their income, they could double their monthly contribution to £100 a month giving them a total contribution of £21,600 and a total ISA pot of almost £32,000 once 5% investment growth, net of fees, has been factored in.

While a parent could deposit the funds into a Junior ISA in their child’s name, they run the risk that the child accesses the money at 18 when they are entitled to manage the funds themselves, leaving them with a shortfall, so it may be wiser to keep it in an ISA in their own name provided they have not utilised their allowance in full themselves.

Still time for students studying this academic year to apply for finance

Those who might have considered funding their own costs, either through a part-time job or thanks to generous parents, can change their mind if they decide student finance is a better option. Student life can often be busy, so working part-time to fund university costs may end up being stressful as it leaves undergraduates with less time to study or enjoy all the extras that come with university, such as hobbies or sports and socialising.

If parents are footing the bill and suddenly have concerns about their own finances, again taking out tuition and maintenance loans can give the family some breathing space. Remember, students can apply for funding up to nine months after the first day of the academic year. For example, those on an undergraduate course starting between August 1 and December 31 this year have until May 31, 2025, to apply for finance.