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It would seem that the media mania over the cost of an education is finally paying off, with the UK government taking increasingly strong measures to maintain the current level of school leavers moving into higher education. According to the Times Higher Education Supplement, 48% of teenagers believe it is too expensive to go university, hence the creation of two government schemes designed to distract students from fees, loans and debts, generated at university.
There are two schemes offered by the government which could lighten the load of financing an education:
1) The Child Trust Fund (CTF)
Child Trust Funds are long-term tax-free savings and investment accounts into which the Government will pay ‘endowments’ when a child is born. A further payment of an undisclosed amount will also be paid at the age of seven. This means that each child born on or after 1st September 2002 will receive an initial lump sum payment of (currently £250 or £500 for poorer families) from the government. This will be sent in the form of a voucher which can then be used to open a CTF account with the investment provider of the child’s guardian’s choice. Parents will be able to pay up to £1,200 a year into the fund, until the child reaches 18 when the account will cease to be a Child Trust Fund account, and will usually be transferred into an easy access account. Preferential tax treatment will then cease, and any further growth in the fund after this time will be subject to normal tax legislation. Savings in a Child Trust Fund account will develop into an asset which can then be used by the child, and no-one else, when they reach the age of age of 18 (not before) to help cover some of the large expenses encountered at this time of a person’s life, and is intended to contribute towards university fees, first mortgage, etc.
Important key facts about CTFs
• CTFs are tax free savings accounts, where neither the parent nor the child will pay tax on the income or gains (such as interest or dividends) in the account
• A free initial £250 voucher will be issued by the government to start each child’s account
• Families receiving Child Tax Credit, where the household income is below the CTC limit, will receive an extra payment
• A maximum of £1200 each year can be saved in the account by parents, family or friends
• Money cannot be taken out of the CTF once it has been put in – once your child is 18 they will be able to decide how to use the money
• Children are allowed to make decisions about how the money is managed when they are 16
• The Government will make a further contribution to CTFs when the child reaches seven years old - the amount has not been decided yet
• There are many different types of CTF account – parents are required to choose the type of account you want for your child
• It will not affect any benefits or Tax Credits the parent receives
• learning about how to make the most of your money is a key part of the CTF
Further information can be found at: http://www.childtrustfund.gov.uk/Homepage/fs/en and compare Child Trust Funds at http://www.moneynet.co.uk/ .
2) Upon reaching the age of 16, a student who has a savings/current account in their own name, may be eligible for an Education Maintenance Allowance (EMA)
An EMA is a weekly payment of £10, £20 or £30, depending on the household income. The money is intended to help with the day-to-day costs generated by staying on at school or college, such as travel, books and equipment etc. Additionally, £100 bonuses available for students who remain committed to their course and get good marks.
You can get an EMA if:
1) Your household has an income of £30,000 or less and
2) Your course involves at least 12 hours of guided learning per week
Courses eligible for EMAs include school sixth forms, sixth-form colleges or further education colleges and encompasses ‘A’ levels, GCSEs, GNVQs, NVQs or other vocational qualifications.
More information can be found at: http://www.dfes.gov.uk/financialhelp/ema/
Rachel writes for the personal finance blog Cashzilla: http://www.cashzilla.co.uk Cashzilla is a personalfinanosaurus. “Rachel” means sheep in Hebrew: “little lamb” or “one with purity”. Cashzilla means financially savvy with great fiery ferocity.
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