Student debt is at an all-time high. Upon graduating, students are now faced with debts of over £40,000, which they will then spend much of their working lives paying off. The debt charity StepChange has reported an 85% increase in 18-24 year-olds seeking help.
Henry Cobbe and Alexandra Grant propose a new approach: encouraging prospective students to build assets to fund their fees and living costs. They suggest that, instead of pushing young people into debt, prospective students (and their parents) could be encouraged to finance their education with targeted Junior ISAs.
In a new report, Introducing Education Savings Plans, published on Monday 20 October by the Centre for Policy Studies, the authors show that this can be achieved with a new savings plan: the Education Savings Plan. This could:
- provide a targeted tax-free investment account for young people – to be opened at birth (or after) and withdrawn at 18 to fund higher education;
- be clearly labelled with a kitemark allowing young people and their parents to easily identify it, and would have a 1% fee cap (now possible due to advances in financial technology);
- fund scholarships and bursaries for young people unable to afford to contribute into their own Education Savings Plan. Providers of Education Savings Plans would contribute a proportion of their fees into a charity for bursaries. Preliminary estimates suggest that £37million per year could be generated for scholarships and bursaries for financially less advantaged children, at no cost to the taxpayer.
Example of how Education Savings Plans could work:
As a suggested minimum, families contributing £2 per day or £60 per month from a child’s birth could have at age 18 approximately £21,000 to fund further education. Families savings an average of £100 per month from a child’s birth could have at age 18 approximately £40,000 to fund further education. Thereby replacing in part or in whole the need for additional student debt.
- The Times (£): Children should start saving for university at birth
- The Daily Telegraph: Scrap student loans and save tax-free to pay for university
- International Business Times: UK Government Urged to Tackle Student Debt with ‘Tax-Free Education Account’
- The Yorkshire Post: Students saving plan could pay university tuition fees
- Wolverhampton Express and Star: Tax-free ‘education accounts’ urged
- Public Finance: Students urged to save to study following tuition fee rise