Thursday, January 7, 2016

With Universities Poised to Raise Tuition Even More, What’s a Parent to Do?

In November of 2015, a Department for Business, Innovation and Skills Green Paper reported that a new regime designed to reward good teaching will allow universities that perform well to increase their tuition fees in accordance with the inflation rate. The Department said the new proposals will “put students at the heart of higher education”. Whilst free-market fans may applaud this news in regards to tuition, the claim about putting students at the heart may be arguable, in light of a problem that will certainly become worse under the new proposals: affordability.

A bit of background

In 2012, the cap on tuition fees was set at a maximum of £9,000 per year, an increase of £6,000 over the previous cap. That increase gave rise to angry protests nationwide as all but a very few universities have taken advantage of the allowable increase and applied the maximum fee to all their courses. As one would expect, most of the protests came from parents who were already struggling to afford their children’s university costs. Now, many of those parents are left in a panic, wondering if the cap is removed, who knows how high those fees will go?

With Universities Poised to Raise Tuition Even More, What’s a Parent to Do?

Anger spills into the classroom

Though it would appear that most people have resigned themselves to the higher fee, many students and their parents are struggling. As reported in a December 15 Guardian op-ed piece titled My students have paid £9,000 and now they think they own me, some educators report that they are catching the brunt of the protest, albeit from their students. According to the piece, the students’ attitude toward the instructors had taken on a tone of entitlement, as if the educators were little more than overpaid employees. As would be expected, such a breakdown in the normally collegial relationships between students and their professors cannot help but have a deleterious effect upon the learning process, not to mention the incentive for graduating students to pursue careers in academia.

Policymakers hold forth a rather questionable beacon of hope

Even though the student loan problem in the UK is not yet as bad as it is in the US, it is troublesome and growing more so. A newer and tougher student loan repayment regime was announced in May 2015. The supposed “good news” offered by policymakers at the time was that they speculated that fees might remain frozen at the £9,000 level. In light of subsequent developments, however, that “good news” may well be an overly-optimistic projection, rendering its potential promise essentially moot. We don’t really know what the future may bring, but it’s a pretty good bet that costs will continue to go up, so the sooner parents (or grandparents) start saving for their kids’ future, the better.

Some methods of saving are better than others

Many parents and grandparents make arrangements to help their offspring pay for their time at university by setting aside a cash fund or, in the parents’ case, opening a Junior ISA (JISA) for them. While the JISA savings pot is admittedly tax-efficient, the low interest rates offered on some types of these accounts may well be eaten up by even modest rates of inflation. Even as interest rates begin to slowly creep upward, it is reasonable to expect that inflation rates will at the very least keep pace with the increases, with the result being that the actual value of the accounts could stagnate or even be effectively depleted.

For the grandparents’ part, the government has not made it easy to establish savings specifically allocated to the grandchildren, which has often left the grandparents little alternative to simply giving cash to their grandchildren. And as noted, that cash will literally decrease in value as inflation rates begin their inevitable increase.

Obviously, the process of saving for your child’s (or grandchild’s) university education is an admirable effort, but it is also one that requires doing one’s homework. The fluid nature of government changes to interest rates and allowable savings policies must be taken into account, as must the potential for increases in the cost of higher education. 

While it is almost impossible to determine with any certainty what the future costs of a university education will be, you can at least ensure that you choose the most effective savings vehicle with which those costs are to be covered. And it probably wouldn’t be a bad idea to instill in the children an awareness that their educators’ agendas are generally focused upon expanding their students’ knowledge, rather than upon the educators’ financial gain.

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