The financial cost for a student may be divided into two parts. The first is that they are now required to contribute up to £1,000 a year towards tuition fees, roughly a quarter of the real cost. There is no guarantee that in future years this may not increase. Students whose parent's residual income is £16,945 or less will not have to pay anything and a sliding scale is in place to a £26,000 ceiling, where the full £1,000 is due.

The second part represents the larger element of costs - the living expenses for the student. Latest figures from the National Union of Students show typical costs run at £5,888 a year in London and £4,476 elsewhere. It is easy to see that a three year degree course in London could entail total typical costs of £17,664, with a maximum grant currently available for new students of just £3,675, leaving a shortfall of just £14,000.

From next autumn, the current combination of maintenance grants and student loans are replaced by income-related loans. Although the Government has said the overall effect will be the same, it still means around £14,000 has to be found from somewhere. Students could find a part time job, but as the average wage is around £4 an hour, this means they would have to spend 47 hours every week of their course to make ends meet. A survey from one of the high street banks showed the average debt for a graduate is around £3,000, to be paid off when they start work.

The conclusion is that the extra funds have come from parents. One option is to find the money each year out of disposable income. Another might be to extend the mortgage on the house. The most efficient way, however, is to plan in advance and start saving - and if this can be done with the taxman's help then all the better.

If there are more than ten years to go, you can take advantage of the new University Bond being run by one of the country's leading Friendly Societies, where regular savings from as little as £30 a month can build up to provide a lump sums each year for three or four consecutive years when they are most needed, and £25 of this each month is allowed to grow totally tax free. Because the money is invested in a With Profits fund, there is no danger of a sudden downturn in value just before the money is due and there is a guaranteed minimum pay out.

As with any form of savings, the key is to start planning as soon as possible.

A free information pack on the University Bond is available by ringing 01484 860123.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

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