STARTING EARLY – SHOULD YOU INVEST NOW SO YOUR CHILD GRADUATES DEBT FREE?

For parents of younger children reading this article now, being proactive about saving for university could leave you with fewer issues later.

Figures from Fidelity suggest that choosing to invest £180 a month into a tax-free Junior ISA from the moment a child is born could generate a pot of money worth £55,000, enough to cover university costs.

For those with less to invest, a monthly saving of £100 could generate returns of £30,874 – more than three-years’ worth of tuition fees.

Junior Isas (or Jisas) are handed over to the child once they reach 18, so the money could be used by them to pay university costs, and even graduate debt free in some cases.

However, Myron Jobson, personal finance campaigner at investment platform Interactive Investor, says that although the idea that your child could leave university debt free is attractive, the unique nature of student debt means that this is not always the best decision.

‘If you’ve been lucky enough to amass a decent stocks and shares Junior Isa pot, it could shave a sizeable chunk off your student debt. Whether you use it for university is much more difficult and personal,’ he says.

Interest rates on student loans can be high (currently 5.6 per cent), but you only start repaying the loan once you earn just over £27,000, and the debt is wiped after 30 years.

‘The Government only expects that 25 per cent of current full-time undergraduates who take out loans will repay them in full,’ Myron says.

‘While funding university yourself is a laudable aim, it is not the most financially cogent approach to take in many cases, as many graduates won’t need to repay the full debt.

‘By the same token, the interest rates on student loans can be eye-watering, so there are no easy answers.’