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By Anne McClean, Partner, Head of Wealth
One conversation I often have is what to do about university fees, and the same concerns tend to arise. Most parents (and often grandparents, if involved in the conversation) don’t want their children to graduate saddled with debt but this often sits alongside a wish that the child understands the value of money. There are valuable lessons to be learned by students taking responsibility for their own finances during their studies.
Whilst many families understandably want to spare their children from unnecessary debt, having some responsibility for the financial aspects of university can help with the transition to independent study and adult life. It encourages thoughtful decision-making and a greater appreciation of the choices and opportunities available to them.
Ideally, planning around the cost needs to start early so affordability can be assessed, who wants to be involved can be decided and the most efficient way of funding is worked out.
What is the cost?
There are three main costs associated with studying: tuition fees, accommodation and living costs.
Most universities charge the full rate allowable for tuition and the maximum for a standard undergraduate degree has risen to £9,790 for 2026/27; the first sustained increase since fees were frozen at £9,250 back in 2017.
Accommodation in the first year is usually in halls and, like all accommodation, varies by location, type, facilities and décor. Expect somewhere between £6,300 and £7,700 for the academic year on a standard university-managed contract. A room at a Cambridge or Oxford college, for comparison, now typically comes in around £7,500–£8,500 for the year, and costs can be higher still in London or premium private halls.
Living costs (food, travel, books and social activities, excluding rent) now average around £140 per week, or roughly £5,500–£6,000 for the academic year, according to the latest Save the Student survey.
Once tuition fees, accommodation and day-to-day living costs are taken into account, many families are looking at a total annual cost of around £24,000–£25,000 per year, and potentially more in London or for higher-cost accommodation. This will vary depending on the course, university and location but provides a useful starting point for planning purposes.
How to pay for it?
There is an expectation that parents will contribute, as student finance is unlikely to cover everything. For many families, the question is not whether to take student finance, but how much.
If you are likely to be meeting most or all of the cost regardless, funding it from family assets (whether held directly or through trusts) is generally the most cost-effective route, as there is no interest cost involved.
Student finance
The main types of student finance are:
- Tuition fee loan
A non-means-tested loan available to eligible students studying full- or part-time undergraduate courses. - Maintenance loan
A means-tested loan designed to help with living costs such as accommodation, food, books and travel.
Where parental income exceeds £25,000, the amount available reduces as household income rises. For students living away from home and studying outside London, the maximum maintenance loan for 2026/27 is £10,830, reducing to a minimum of £5,048 depending on household income. For those studying in London, the maximum is £14,135, reducing to a minimum of £7,039. Higher rates may be available for some students, including those eligible for certain benefits.
The way student loans work often surprises parents. Two graduates can borrow exactly the same amount yet repay very different sums over their careers. Higher earners may ultimately repay considerably more, whilst those with lower or less consistent earnings may see part of the balance written off after 40 years.
This means a student loan is not always best viewed as conventional debt. Whether a family should fund university outright, utilise the available loans, or adopt a combination of both should be considered as part of a wider financial plan.
Tax-efficient steps
There are a variety of ways to meet the cost, depending on factors such as income, available assets and overall affordability. Ideally, a family should agree a broad strategy early and, where appropriate, involve grandparents and siblings in the discussion.
Once you’ve decided what level of support you wish to provide, the next step is to consider which assets are available.
For example, widow Daphne receives a substantial final-salary pension income, much of which accumulates in a bank account and remains unspent. Her income comfortably covers her own lifestyle needs, so gifting some of it to her two grandsons helps them directly with education costs whilst also reducing the value of her estate for inheritance tax purposes.
Using her £3,000 annual gift exemption, Daphne can gift £1,500 to each grandson this tax year without it forming part of her estate. If she did not use the previous year’s exemption, this can be carried forward, allowing up to £3,000 to each grandson in a single year.
Daphne is also a beneficiary of a trust established under her late husband’s will, and it has been agreed that the trust can help provide additional support.
Another family may choose to fund university costs from ISA savings accumulated over many years, whilst grandparents with surplus income may be able to make gifts out of excess income that fall immediately outside their estate for inheritance tax purposes. The right solution will vary from family to family but planning ahead generally creates more options.
These contributions are often gifts, given with no expectation of repayment. In some circumstances, however, families choose to structure support as a loan. Whilst there is an opportunity cost for the lender in terms of lost growth or income, a family loan may prove more attractive than student finance in some circumstances, particularly where the intention is to repay the funds over time.
Two points are worth bearing in mind. The inheritance tax nil-rate bands remain frozen until April 2031, and from April 2027 unused pension funds are expected to form part of an individual’s estate for inheritance tax purposes. Families intending to use pension assets as a future source of support for children or grandchildren may therefore wish to review those plans sooner rather than later.
Financial Literacy
University is often the first real opportunity for a young adult to take responsibility for their own finances.
Budgeting is a natural place to start. Research consistently shows that some students spend part of their maintenance loan on non-essential purchases rather than the basics it was intended to fund. Sitting down and discussing what a weekly or monthly budget looks like can be a valuable exercise.
Parents might also consider transferring responsibility for costs such as mobile phone contracts, clothing, subscriptions or car insurance. Having to prioritise finite resources can teach important lessons about needs, wants and financial decision-making.
At the other end of the spectrum, some students manage to save part of their loan entitlement and begin investing early. Whilst this will not be appropriate for everyone, it can provide a useful introduction to long-term financial planning.
Conclusion
University funding is rarely just about paying a bill. It can sometimes be the first significant financial decision a family makes together involving the next generation.
Whether support comes from parents, grandparents, trusts or family investments, early planning can help ensure that the cost is affordable, tax-efficient and aligned with wider family objectives. Just as importantly, it can create an opportunity to start developing the financial confidence and responsibility that young adults will need throughout their lives.
This is issued by IPS Capital LLP of 4 Eastcheap, London EC3M 1AE; a limited Liability Partnership registered in England OC328405 and authorised and regulated by the Financial Conduct Authority. It is issued in the UK only. This publication does not constitute advice and is for information purposes only. You should not make any investment decision based on this information alone. The information contained herein is correct to the best of our knowledge and we may not be held liable for any errors or omissions. IPS Capital LLP does not offer tax advice and you should seek professional tax advice for your own circumstances. The value of investments can fall as well as rise and you may not receive back the full amount of your original capital.
