Investing for university: why the Bank of Mum and Dad is so important

As students find out their A-Level results, many parents of younger children will be giving thought to how they will pay for university in the future. It’s even more pertinent this year given growing scrutiny of the student loans system, which has been described as ‘broken’ and ‘unfair’ by government officials.

Certain parents might wonder if they should save and invest to help fund their child’s university costs instead of relying entirely on student loans. There is a strong case in favour of doing so.

It’s never too late to start investing to support this cause and putting money away on a ‘little and often’ basis can produce meaningful results down the line. The sooner a parent starts investing, the less they might need to put away each month as they have more time on their side to build up the pot.

Ultimately, the Bank of Mum and Dad has never been more important for children as they leave school.

The big debate: help fund university costs or a house deposit?

The idea of a child burdened with considerable debts as soon as they graduate is daunting, and there are concerns that those on a decent wage could see a lot of that reward gobbled up by income tax, National Insurance and student loan repayments.

Many people argue that parents keen to give financial help to their child post A-Levels would be better off focusing on a house deposit.

Student loans are different to normal debt like a personal loan or credit card, with repayments based on income and not the size of the balance. The sooner someone gets on the housing ladder, the sooner they stop handing money to a landlord with nothing to show for it beyond a roof over their head. At face value, opting for housing support over university costs looks a no-brainer for parents, but that argument doesn’t stand up as well under the Plan 5 student loan system.

Previously, there was a sense that many graduates would never repay the full amount. However, under Plan 5 a lot more could repay, with middle earners potentially worst hit because they might build up the most interest over the maximum 40-year repayment term. Those on Plan 5 repay 9% of everything earned above a threshold currently sitting at £25,000 a year. That’s just above the minimum wage.

The government predicts that 56% of university students who started in the 2023/24 and 2024/25 academic years will repay in full. That’s partially down to any remaining loans not being wiped until 40 years after graduating, rather than 30 years under the old Plan 2 system.

While student loans don’t appear on a credit report, they do affect how much you can borrow for a mortgage. Parents offering support with a deposit won’t be much help if you can’t get the right size mortgage.

Lenders’ affordability tests look at whether someone can afford the monthly mortgage cost and student loan repayments will be counted among their outgoings. This suggests parents should try and give their children as much financial help with university costs as possible to minimise student loan obligations.

The Bank of Mum and Dad is also needed on another level for university days. The maintenance loan is unlikely to cover everything a student needs, and that can leave them short of money if they don’t get adequate financial help.

Maintenance loans are a key source of money for students at university, covering rent, bills, food, and entertainment.

Falling short financially means students come under pressure to cram in a part-time job alongside their education. That can cause stress and potentially have a negative impact on their studies. Therefore, parents might find that putting some money aside now could help relieve the burden once the child eventually goes to university.

How much does university cost?

According to a study by Save The Student, going to university could cost approximately £70,000 for a three-year course starting in September 2026. That breaks down to roughly £30,000 for tuition costs and £40,000 on living costs.

Meanwhile the government has forecast that full-time students starting in September 2025 will borrow just over £45,000 on average over the course of their studies, government data shows.

The bottom line is that while the size of your loan can vary significantly depending on where you study and parents’ household income, university is still likely to leave you with a large amount of debt.

The maximum a full-time undergraduate in England can borrow is £9,790 for tuition fees and £14,135 for living expenses if studying in London or £10,830 outside of the capital. The maximum tuition loan rises to £10,050 for the 2027/28 academic year, and the maintenance loan details will be announced this autumn (figures for 2028/29 are currently unknown).

Parents or guardians with children in secondary school or younger should be able to use this information as a guide to potential university costs, accepting that amounts will probably go up each year.

Someone with a young child might find that £70,000 is way off the mark by the time their turn at university comes around. That’s why it’s vital to get an investment plan in motion early.

It isn’t ‘all or nothing’

The existence of the student loan system means parents don’t have to save the full amount for university if they cannot or do not want to. Students also don’t need all the money on day one of a three-year course as the outgoings are spread across the length of the studies.

It’s worth using a Junior ISA to house the investments so the money can grow tax-free and is locked away until the child turns 18. Up to £9,000 can be paid into a Junior ISA each tax year – either by a parent, relative or friends.

Not everyone has £9,000 going spare. Let’s face it, parents have significant demands on their cash when a child is young, such as paying for nursery or a child minder. They might only be able to start investing into a Junior ISA once the child starts secondary school, and they may only be able to save a relatively small amount. That’s still plenty of time to build up a meaningful pot of money that can reduce the debt burden of going to university – and could equally be used for other means if they pursue a different path than higher education.

For example, a parent who pays in £250 per month into a cash version of a Junior ISA from their child’s 11th birthday – just before they start secondary school – until they turn 18 would have a pot worth £23,394 at the end of the seven-year period, assuming 3% interest paid monthly.

Had that money been invested in the market, the Junior ISA could potentially be worth a lot more. For example, someone who started investing £250 a month seven years ago into Fidelity Index World – a low-cost global stocks and shares tracker fund – would now have a Junior ISA worth £35,224, according to FE Analytics data.

That would cover half the expected cost of university and be a nice little surprise for a child otherwise expecting to graduate with a degree and a bucket load of debt.

Covering half the university costs is brilliant, but covering everything would be a godsend. Just remember that you need to be comfortable with any investments you make and the level of risk before committing your money.