The Autumn return to University
Autumn
leaves mean that the new academic year is about to
start, or have started, for most universities. The
beginning of the 2009/10 year has been marked by a
shortfall of available places as school leavers
opted for further studies rather than joining a
tough jobs market.
In England, the maximum university fee rises by £80
to £3,225 for the year. In theory universities do
not have to charge the maximum, but in practice the
maximum is the norm. The current shortage of
university places renders any price competition
unnecessary. The government has already said that
the maximum fee will increase to £3,290 for the
2010/11 academic year, while at the same time
student grants will be frozen. A review of fees
from 2011/12 onwards was announced by Lord
Mandelson in July this year. It seems likely that
the outcome will be a substantial rise - £5,000 has
already been mooted as a possibility by the head of
OFFA, the quango that polices access to university
places.
Under the English system – the other parts of the
UK all have subtly different student support rules
– the tuition fee is automatically paid by way of a
loan which the student has to repay once their
education ends. Currently the loan is
interest-free, but capital repayment is
index-linked to the RPI. Alas, although the RPI is
currently in negative territory, this does not mean
that loans will shrink in size, as there is a 0%
floor. The fee review may suggest that loans start
to carry something closer to a commercial rate of
interest.
The tuition fee loan is not the only loan for most
students. There is also a loan for maintenance,
entitlement to 28% of which is now means-tested. In
earlier years the means-testing limit was 25%. The
maximum loan for a London student living away from
home can be as high as £6,928 a year, although most
loans limits are lower (contact us for more
details).
Repayment of the maintenance and fee loans begins
once the former student has earnings over £15,000 a
year. The repayment rate is 9% of earnings over
£15,000 a year. For example, a graduate earning
£25,000 a year – the average graduate starting
salary in 2009 according to the Association of
Graduate Recruiters – will repay their debt at the
rate of £900 a year (£10,000 x 9%).
For employed students the loan repayment is made
via the PAYE tax system. In that respect it could
be regarded as a graduate tax, replacing the
current basic and higher rates of tax with rates of
29% and 49%. Once national insurance contributions
are taken into account, the graduate employee
potentially pays a marginal 40p or 50p in the
pound.
Recent research suggested that this year’s student
intake could owe £23,500 by the end of a three-year
course, compared with about £14,000 for today’s
graduates.
ACTION
University costs are now a serious issue: the drag
of substantial debt could loom over even a
successful graduate for many years. However, for
now it makes no sense to repay student loans ahead
of time while their inflation-linked cost is
minimal. If, as seems possible, interest starts to
be charged on loans for new students, then the
picture will change.
It is never too early to start planning for student
finances. The pattern of the last ten years and
current government budget deficit both suggest that
state support will continue to shrink.
Inside this issue:
Not watching an investment - Are you taking big risks by being passive?
Back to University - Preparing to pay for this educational investment
Wealth Creation Specialist - October 2009 Newsletter
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So you made an investment and then forgotten all about it? It’s only when something goes wrong that you realise it should have been noticed sooner. Most things in daily life get checked periodically; bank statements, the amount of fuel left in the car, your teeth…! The same applies to your investments. If you don't keep regular tabs on them, you could see years of savings go up in smoke.
Too few investors subject their investment portfolio to a regular review. But if you set aside an hour or two every six or 12 months to look at how your investments are doing, to ensure nothing's going off the rails and costing you money without you realising it, you could be doing yourself a massive favour.
If you have a high-risk investment portfolio, you should give it a close inspection at least every quarter. Similarly, if you are approaching retirement, it is increasingly important to keep an eye on your portfolio. When you are 5 years or less away from retirement, you definitely need to start looking at your investments more closely. You need to think about locking in your gains and moving to more cautious territory as the date closes in.
You don't need to go crazy and change everything each time you examine your investment. But keep in mind that reviewing your investments is about more than just checking performance. There is no way of knowing if your investments are really meeting your needs unless you take stock and reconsider your objectives.
Consulting with a season professional can help clarify objectives and deliver a consistent but flexible approach to meet future changes such as increases in income which may mean your tax position has altered. Also, you might be missing out on tax brakes by not conducting a review once a year. This could result in you paying thousands of pounds in extra tax on profits made.