Do you dream of one day sending your child off to university, but shudder at the thought of them leaving tens of thousands of pounds in debt just as they start out in life?

Tuition fees for a three-year university course in England and Wales are set to rise to £28,600 this academic year. With rent, books and bills on top, graduates will typically enter the jobs market with an average debt of around £45,000.

For some, this will be a debt for life, a tax on their earnings for up to 40 years until any remaining balance is finally wiped clear.

With such a gloomy prospect ahead, looking for ways to fund your children through university may well be one your top financial priorities.

How much does university cost in 2025?

Since 2017, the maximum annual tuition fees that universities in England and Wales could charge has been £9,250. The government is ending the seven-year fee-freeze for those starting university in September.

For students studying in England and Wales, fees will rise to £9,535 a year. Scottish universities do not charge tuition fees to students from Scotland. Students who normally live in Northern Ireland pay £4,855 a year if the go to university there.

Accommodation is important to consider when deciding how much to save

Parents must not overlook the costs for accommodation, food, books and other daily expenses, which vary depending on the standard of your digs and location. Based on the maximum maintenance loan available, however, you can expect this annual bill to exceed £13,000.

All told, students who started their course in September 2022 are expected to leave university with eye watering average debts of £45,600 according to government forecasts. 

Starting to save early

One way to help your child avoid this gloomy fate is to set up a manageable long-term savings plan early enough to build up the nest egg they will need.

Starting to save as soon as your child is born means you can spread the cost of paying for university over 18 years to minimise the impact on your household budget.

Taking £45,000, the average student debt, as your savings goal and increasing this by 2 pc inflation each year, you would need to save £63,000 for someone born today graduating in 18 years’ time.

To hit your target you would need to save a lump sum of £2,150 a year or £180 a month if you invested it and made a return of 5 pc a year, according to investment platform AJ Bell.

If you saved into a cash savings account with a 2 pc interest rate you would need to save £2,900 a year or £242 a month.

If starting secondary school is the trigger for your university savings plan, you would need to put away a lump sum of £5,150 a year or £429 a month, assuming a 5 pc return, to save £52,000. This is the amount they are likely to need, assuming that fees rise with inflation. At an interest rate of 2 pc on cash savings, a regular monthly deposit of £500 or a lump sum of £6,000 would be needed.

Don’t blow the household budget

Not everyone can afford to set aside hundreds of pounds every month for an event one or two decades in the future. Be realistic about the amount you can afford to spare every month that will not put your household budget under pressure. Remember, if you start early enough even a modest sum saved regularly can soon mount up.

Take a monthly deposit of £100, for example, saved from birth earning a return of 5 pc a year. After 18 years you would have amassed £35,500 – enough to make a significant contribution towards university fees. At an interest rate of 2 pc, your savings would be worth £26,200.

Where should I invest my savings?

A Junior Isa can be a good starting point, because they allow you to save or invest tax free. A Junior Isa is held in the name of the child, so parents can contribute towards it without it affecting their own £20,000 annual Isa allowance.

Laura Suter, AJ Bell’s director of personal finance, says: ‘When you’re starting out it might feel a bit confusing picking the right account. A Junior Isa (Jisa) is a good option for many parents because you can pay in up to £9,000 a year, the money is ring-fenced in the child’s name and it’s locked up until they turn 18.’

You can choose a cash or stocks and shares Jisa or a mix of both – as long as you do not exceed the £9,000 annual allowance. Any interest or investment returns earned are tax-free.

Once deposited, the money cannot be withdrawn until your child turns 18 years old, at which time they can access all the cash. This does run the risk that they may use it for a purpose you have not intended.

If you want more control and the flexibility to dip into the pot should you need to, you could use your own Isa which comes with a £20,000 annual savings limit – as long as you do not plan to use up all your allowance for your own investments.

Should I take risks with my child’s uni fund?

Any investment made in the stock market carries the risk of going down in value as well as up. However, there is the potential to generate a higher return over time than if you saved into a cash savings account.

Your investment choice will depend on how long the money can be invested for, says Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment service.

In general, the longer the time horizon you have, the more risk you can afford to take. That is because, in general, higher-risk portfolios tend to produce higher returns over the long term, but over the short to medium term there is a higher likelihood of volatility. You want to avoid the risk of a large drop in the value of your investments just before you plan to withdraw the money.

‘Money invested when a child is a baby which will remain in the financial markets for almost two decades can afford to be directed into riskier funds such as those largely invested in shares,’ says Haines.

Equities, or shares, can be highly volatile in the short term but historically deliver more robust returns over the longer term.

Haine says parents should typically adopt a global approach to investing rather than zoning in one on market, such as the UK or US.

If you prefer funds over picking your own shares, you can opt for a low-cost passive fund that tracks the performance of a particular market. Alternatively you can pay more for an active fund run by an investment manager, which aims to beat the market.

‘There’s no need to sit entirely in one camp,’ adds Ms Suter. ‘You can mix the two approaches by having a broader stock market tracker and an active fund for a more specialist area of the market.’

AJ Bell’s low-cost passive fund suggestion that tracks the global stock market is Fidelity Index World. Considered higher risk because it purely tracks the performance of shares, this fund gives exposure to hundreds of companies around the world and costs just 0.12 pc a year. Over the past 10 years a £5,000 investment would have turned into £16,700.

An actively managed alternative for parents who want to invest in a sustainable fund option for their child’s future is the Liontrust Sustainable Future Global Growth Acc. The team in charge of this £1.4 billion fund invest in sustainable and responsible companies around the world. Costing 0.85 pc a year, over the past 10 years £5,000 would have turned into £15,750.

Investing purely in shares is likely to be too risky a strategy for parents who have a shorter timeframe to invest for their children, for example five years. A more balanced, conservative approach that matches their attitude to risk which involves investing across different sectors, regions and a range of asset classes such as shares, funds, bonds, Exchange Traded Funds and investment trusts – makes more sense, adds Ms Haine.

For example, Vanguard Lifestrategy 60 is a low-cost fund that invests 60 pc of its portfolio in shares and 40 pc in bonds – which are seen as lower risk. Over the past 10 years a £5,000 investment would have turned into £8,635 and it costs 0.22 pc in annual fees.

Should you pay tuition fees upfront?

If you’ve saved all the money by your child’s 18th birthday, you could pay for tuition and living costs as they arise. But should you?

Your child could take out student loans to pay for their tuition and living costs, which do not have to be repaid until they start earning £25,000 or more, although interest starts accruing as soon as the loan is issued.

That gives parents the choice of keeping their money invested for at least another three years before any repayments are due or even longer depending on your child’s starting salary.

If you leave the money invested for those extra years it has the potential to secure even higher investment returns. However, this needs to be weighed up against the interest accrued.

For students accruing interest at 4 pc, for example, your investments would need to generate returns in excess of that figure after fees.

Remember, if your child never earns above £25,000 a year, perhaps because they work part-time or start a family, they may never have to repay a penny. That is because students who are starting university this year will see their loans written off after 40 years if they are still outstanding. In Wales and Scotland, they are written off after 30 years and in Northern Ireland it’s 25 years. 

What loans and grants are available?

Students can take out a loan to cover all their tuition fees which is paid directly to the university and an annual maintenance loan to pay for living costs that they receive directly into their bank account. The 2024/25 interest rate for students on Plan 5, applicable to students starting courses on or after 1 August 2023, was 4.3 per cent. The interest rate is based on the Retail Price Index rate of inflation each March, before the academic year begins in September.

The maximum annual fee, which most universities charge, is £9,535. English undergraduates are entitled to a maximum maintenance loan of £13,762 while Welsh students fare slightly better with loans of up to £15,415. The exact amount awarded depends on parents’ household income and where the undergraduate plans to study.

Means-tested grants for living expenses, which are not repayable, are available to students who meet eligibility criteria in Wales, Scotland and Northern Ireland. Visit Savethestudent.org to find out about more obscure sources of grant funding from local councils, charities and businesses.

Ask your university about any bursaries that have been set aside for students on certain courses such as midwifery. Be quick though, these are often dished out on a first come first served basis and competition for these much sought after grants is competitive.

Should I repay any of my children’s student loans?

The government forecasts that 35 pc of students starting university in 23/24 will not repay their loan in full during the 40-year period.

Tom Allingham, communications director of student money website, Save the Student, says: ‘It’s probably better to view student loans not as a loan, but more like an extra tax you’ll be paying for a large chunk of your working life.

‘If you’ve not repaid in full after 40 years, the remaining balance is wiped, no matter how much or how little remains.’

Ms Suter says it is almost impossible to work out if you are better off paying back student debt straight away or leaving it place while you establish what sort of career and salary you’ll end up with.

For example, assuming that the repayment threshold of £25,000 increases by 3 pc a year, a graduate who starts on a salary of £20,000 which also increases by 3 pc a year would only ever pay back £235 of their original £45,000 loan. After 40 years, £150,609 of debt and interest would be wiped off. By contrast, a graduate starting on a salary of £40,000 would repay £86,228 over 38 years. So it would make sense to pay off the loan early in this case.

Ms Haine adds: ‘If your child decides to turn their back on a conventional career to backpack around the world taking on low-paid jobs along the way, then covering the debt in full would be futile. If they look set for a high-flying career then overpaying or clearing the debt could offer huge financial support.’

If you have saved enough to help cover university costs, you may want to consider whether this is the best use or whether some might be used to help towards a house deposit or even to boost their pension savings.