Your Money: How to Stay on Course and in Budget ; the Worthy Ideals of Higher Education Can Be Shattered by Unexpected Bills, Poor Budgeting and Downright Profligacy, Writes John Andrew

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British graduates now leave university with debts averaging pounds 10,000, with some owing up to pounds 15,000, while one in five of all students are forced to drop out before graduating because of financial hardship. These harsh figures, set to be confirmed when a Barclays annual survey is published later this year, should concentrate parental minds on how to help fund their children's higher education.

When Sir Peter Ustinov said "British education is probably the best in the world, if you can survive it", he could have been referring to the financial aspects. For children in the second year of sixth-form this is the stressful examination season. It will then be followed by the nerve- racking wait for results and, hopefully, a period of euphoria when dreams of becoming an undergraduate are realised. As proud parents drop off their fledglings at university, they probably have no idea of the true financial impact on their budgets, let alone their son's or daughter's.

Marlene Hills, an accountant and writer from Warwickshire, observes that when today's parents studied in the 1970s they did so when everyone received a grant. Although this was means-tested, the cost of a degree then was not financially onerous for parents. It was unusual for a student to graduate with any debt.

Today, grants have been replaced by student loans. As the table shows, 25 per cent of the loan is means-tested on the parents' combined residual income. This is:

n gross income from all sources;

plus

n what the taxman calls "benefits in kind" ie the value placed on company cars;

less

payments that qualify for tax relief, ie contributions to pensions.

Parents of students who do not qualify for the maximum loan are expected to pay the shortfall direct to their offspring. The parental contribution to the pounds 1,075 annual tuition fee is also means-tested. If the parents' residual income is below pounds 20,000, they pay nothing, while if it is pounds 29,785, they are expected to pay it all. The table gives details of the means- testing.

Research by the National Union of Students (NUS) estimates a typical London student has an average pounds 4,332 shortfall of incomings over expenditure. Those outside the capital fair a little better with a shortfall of pounds 3,596. The fact is that the loan plus the means-tested parental contribution does not cover a student's living costs. This leads students to either borrow commercially, drop out, or turn to their parents for more help. However, as Owain James, NUS president, says, "It is a well-known fact that not all parents are able to do this."

Of course, students can help fund their education by doing part- time work. And in many cases this is essential. Although the loan is also means-tested on a student's income, money received from employment is thankfully totally exempt.

Phil from Lancashire appreciates that student employment is both commonplace and looks good on a CV. However, he is not encouraging his daughter to earn while studying. …