10 min read

How to help your grandchildren through university

Grandparents with their grandchild who has graduated university

It is estimated that young adults heading off to university can now expect to leave their studies with eye-watering debt of £57,000. Taking into account tuition fees, rent and the cost of living, the amounts quickly tally up.

Can your grandchildren afford to go to university?

A survey by the Association of Investment Companies (AIC) trade body found that 64% of those who had graduated within the past five years think it will take them more than 20 years to repay their student loan.

It is no wonder then that the Bank of Gran and Grandad is providing more financial support than ever before. As life expectancy rises, the concept of a ‘living will’ has become increasingly appealing to grandparents wishing to pass on their wealth while getting to see their family enjoy it.

The AIC survey found 65% of students were hoping their family would be able to help them financially while they were at university. Meanwhile, a third of students whose family contributes to a saving scheme for their future say they plan to use the money to pay for university costs.

However, even a healthy savings pot may not be enough to leave education debt-free.

Adding up the high costs of university living

Despite the reputation of students in popular culture as spending money on alcohol and parties, according to the National Union of Students the average student will spend:

£8,354 a year on tuition fees
£709 on travel
£1,070 on books and equipment

And that’s just the education part of university. On top of that, students will typically spend £4,834 on rent each year, £1,956 on food and more than £300 on household goods and insurance. That’s a total of £17,223 every year – not far from the average starting salary graduates can expect once they’ve finished university.

It’s no surprise then that your grandchildren may worry they need financial support to attend university. But savers keen to support their younger relatives need to make sure they are not leaving themselves in the lurch before helping out family members.

How you could help your grandchildren afford university

While starting a Junior ISA is a great way to help save for younger children who may be off to university in the future, for those already there and struggling with costs there are other options which could enable parents and grandparents to provide a financial lifeline.

Considering a lifetime mortgage

A lifetime mortgage is one possible solution; these allow you to release some of the equity in your property without having to move.

Homeowners who are aged 55 or over can borrow a one-off lump sum against their home, and then choose how they repay the money. Options include monthly interest payments, similar to mortgage repayments, making ad hoc repayments or not making any payments.

Any remaining money which is owed at the end of the agreed term is paid using the money generated from the sale of the home either after you die or if you move into a care home, for example. Crucially, you never owe more than the value of your home so you should always be able to repay the debt.

Lifetime mortgages have become a more popular option in recent years as house prices rise and people live longer in retirement and need to fund home improvements, care costs, or simply top up their pension income.

While equity release products do have higher interest rates than a traditional mortgage they do not have the restrictive age limitations – most providers won’t lend to anyone past age 70.

Meanwhile, as equity release has become more common and competition increases, the average interest rates on products have fallen. Figures from the Equity Release Council show that typical borrowing rates in January 2016 were 6.2%, but had dropped to 5.3% by July 2017.

One of the most appealing things about equity release to many people is that because you always own your home you can still benefit from any increase in its value.

How much money could an equity release product release?

According to the Equity Release Council, homeowners unlocked more than £2billion of their housing wealth in 2016 and more than 31,000 homeowners used an equity release product to raise money against their home in the first half of 2017. Some 22% of those who take out a lifetime mortgage use the money to help their family, whether it’s helping their children buy their first home or paying school fees.

Its data shows the average age of someone taking out a new equity release plan in 2017 was 68. Those opting to take a lump-sum had an average house price of £306,414 and took a loan of £95,386.

Should you release equity to help your grandchildren through university?

Equity release products can be complicated to understand, and their suitability will be dependent on your circumstances.

According to the Equity Release Council there are more than 78 different equity release plans available to homeowners compared to just 24 a decade ago. There are also various considerations to bear in mind such as the fact that the value of your estate which you can pass on could be reduced as a result.

For these reasons, it is important to speak to a financial adviser before you make any decisions – and worth discussing with your family to make sure it’s the right choice for everyone involved. Products like a lifetime mortgage may be an attractive option to help, but there are other options worth exploring.

 

Written by Holly Black – Financial Journalist

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.