Uni plans need a degree of caution

Bank of Mum & Dad may not be best funding option The student loan system can be tricky to navigate.

Last year, the Government announced the launch of a new scheme called Plan 5, which is quite different from the previous system.

With Plan 5, students will start repaying their loan when they earn over £25,000 per year.

This threshold will be frozen until 2027, when it is planned to increase with inflation.

Another change is that the interest rate charged on student loans will be linked to the Retail Prices Index, so it will rise and fall in line with inflation.

And the new system will give students 40 years to repay their loan, instead of the current 30 years.

Parents often want to help fund their children’s university education – but at a cost of £9,250 per year before you’ve even paid for a single textbook, Pot Noodle or any accommodation, the cost is far from trivial.

I have a rule with financial planning that you should organise your present finances first – banking, debt repayment and insurances – and then you should consider your future finances and retirement plans.

Only when both of these are done should you consider others: it’s the “now, then, them” principle.

In economics there is the concept of “opportunity cost”, which considers all the things you miss out on when you dedicate your resources to something.

In my view, the opportunity cost of clearing someone’s student loan is almost always going to exceed the benefit.

Even if your current finances and retirement plans are on track and you are fortunate enough to have surplus money available, you would be better off setting some money aside to help

Parents often want to help fund kids’ uni education – but the cost is far from trivial

your children with future expenditure, such as a house purchase, than paying for their tuition fees.

If you decide to go ahead though, this could mean you have less capacity to help towards their deposit for a first home, meaning a bigger mortgage on terms far less favourable than a student loan – and possibly more time living at home with you or in rented accommodation while trying to save for a deposit.

Another opportunity cost might be a new car when your child starts work, meaning they opt for a finance deal also on terms far less favourable than the student loan.

A more topical (although, admittedly, less prevalent) opportunity cost might be helping to fund childcare for any grandchildren.

Because this averages more than £1,000 per month per child, the eyewatering expense is likely to dwarf almost anyone’s monthly student loan repayment.

If you are keen to support your children, helping with their accommodation and living costs may be a better option and, ultimately, helping them with a house purchase, using a Lifetime ISA, is more appropriate.

The deadline to apply for student finance for the 2024-25 academic year is May 17 for new students and June 21 for returning students.

To download your free copy of my guide to student loans, go to lexingtonwealth.co.uk/student_guide