As we approach the start of a new academic year, you might have children or grandchildren attending university for the first time. While pursuing higher education could improve their job prospects and teach them valuable life experience, it does come at a cost.
Many students take out loans to cover tuition and living expenses while at university, often paying this amount back for much of their working life.
If you are able, you might consider paying for some or all of the university costs for a child or grandchild to help them avoid this financial burden.
However, this may not always be as beneficial as it appears.
Read on to learn how much university is likely to cost your loved ones and the pros and cons of covering the expense.
The average graduate will finish university with £45,190 of debt
The cost of attending university in England increased significantly under the Conservative-Liberal Democrat government when the fees effectively tripled.
As such, in 2026/27, tuition fees are capped at £9,790 a year, with most institutions charging the full amount. The cost varies in Scotland (where it is free for Scottish students) and Northern Ireland (which has a lower cap).
As well as the tuition fees, your child or grandchild will have to cover their living expenses including:
- Rent
- Utility bills
- Groceries
- Educational materials such as books
- Social spending
These costs quickly add up, and if your child or grandchild funds their time at university with loans, they could end up with a large amount of debt.
According to the Department for Education, the average student starting university in 2026/27 will have debts of £45,190 when they graduate.
Loan repayments only start once earnings reach £25,000
Student loans work differently from a typical loan in that the borrower only starts repaying when their earnings reach a certain level.
Your child or grandchild will only become eligible for repayments from the beginning of the new tax year after they graduate. At this point, repayments will start once their earnings exceed £25,000 a year.
They’ll pay 9% of any earnings that exceed the threshold. As such, the more they earn, the higher the repayments.
However, the remainder of the loan – if they haven’t paid it off already – will be written off 40 years after they first became eligible to pay.
Because of this unique repayment system, only 55% of full-time graduates who started in the 2025/26 academic year are expected to repay their loans in full.
The pros of covering university costs
1. Reduced debt and increased income
Taking out a student loan can hamper your child’s financial future when they graduate and start earning. Once they reach the £25,000 threshold, they will lose a portion of their income to repayments each month.
As interest is applied and the repayments scale with their earnings, they could be paying a notable portion of their salary towards loans for up to 40 years.
This makes it harder to build their savings and reach important milestones such as purchasing their first home.
By paying for some or all of their university expenses, you could prevent this and leave them with more disposable income at the beginning of their financial planning journey.
2. Gifting lump sums could reduce the size of your estate for Inheritance Tax purposes
When you pass away, your beneficiaries may pay Inheritance Tax (IHT) on any portion of your estate that exceeds certain thresholds called the nil-rate bands.
Fortunately, you can gift wealth during your lifetime to reduce the size of your taxable estate and potentially reduce the IHT your family eventually pays.
Giving a child or grandchild financial support for university may be a good way to achieve this.
However, there are complex rules around gifting and IHT, so it’s important to seek professional advice first and ensure you are on the right side of the legislation.
The cons of covering university costs
1. Your child might not pay the full amount back
Depending on how much they earn, your child might not pay their full loan back before the remaining balance is written off after 40 years.
If you gifted them £40,000 to cover their costs, for example, they could pay for university in full upfront. But if they took out a loan for the same amount, they might only pay back £20,000 before the remainder of the loan is written off.
In this case, it might have been better to let them take out the loans but make regular gifts to help with the repayments afterwards. This would effectively leave them in the same position financially but would cost you less.
2. Large gifts could put pressure on your finances
If you offer financial support that you can’t afford, you may have to make sacrifices to your own lifestyle. This might affect your retirement if you use a portion of your savings to help a child with university costs.
We can assess your finances and determine how much you can afford to give without affecting your own quality of life now and in the future.
3. They might prefer to use the wealth for other purposes
While a cash gift for university costs might be welcome, a child or grandchild may benefit from using this wealth for other purposes.
For instance, you could let them take out loans to pay for university but later give them a lump sum for a house deposit or wedding. This means they can reach financial milestones despite having to repay student loans.
Get in touch
We can help you incorporate gifts into your financial plan so you can support loved ones while also protecting your own lifestyle and goals.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning or estate planning.