Strategies to avoid the student debt trap

The death by a thousand cuts of state-subsidised higher education is now complete with the introduction of tuition fees. This follows the end of maintenance grants.

The National Union of Students estimates that people studying outside London will need to find £5,881 a year to fund their education. By 2010 they could be looking at a bill of up to £30,000 for three years in higher education.

One solution is for parents to impoverish themselves. The universities and the government are keen to point out that only a third of students in England and Wales will pay the full whack, a third will pay no tuition fees and the rest will face a means-tested contribution.

Or you could try moving. Scotland is ditching tuition fees for its own and European Union students but not for those with English, Welsh or Northern Irish addresses. The Scottish Endowment Access Fund to will also help poorer students from next year, giving them £2,000 a year if their annual family income is less than £10,000.

But none of this is likely to save most young people from graduating with five-figure debts and loans to repay when they start earning just £10,000 a year.

Last month the government announced an extra £64m to assist poorer students in England and Wales. This will provide heavily means-tested access funds and hardship loans - and these will be available only after the full student loan has been taken up.

The alternative to all this is for parents to save up while their offspring are still at school. For many, that will be an extra burden on top of the home loan, pensions, and other demands on the family purse. It's no surprise then that paying for higher education is the next big finance issue and institutions are gearing up for expansion into this area.

One of the first financial institutions to offer a special product is a friendly society, Tunbridge Wells Equitable, which last summer launched a university bond offering investment opportunities for parents of children aged eight or under. This takes advantage of the £25 a month tax-free savings entitlement of a child and gives with-profits endowments timed to mature at the beginning of each year of higher education.

For those whose children are older, a way of finding funds may be for both parents to work or to remortgage the family home.

Scottish Widows Bank has introduced an Education Fund Mortgage with a flexible borrowing approach and the capacity to overpay the mortgage in advance.

You can remortgage your home and buy a property for the student's use. Your remortgage costs can be offset against rental from other students for tax purposes.

Mark Ireland, an independent financial adviser from Winchgate Insurance in Bristol, says raising money on the parental home has the advantage of reasonable home loan rates.

Students themselves can get a mortgage with a parent acting as guarantor. Nationwide and Cheltenham & Gloucester offer these.

Lenders who offer buy-to-let schemes are on the increase - but be warned, not all of them want student tenants. Halifax Mortgage Services is an exception. You will need a 20% to 25% deposit. Interest rates will be higher than normal and the loan amount will be limited so that the rent is at least 130% of the interest.

Buying a student home is a good capital investment, says Liz Atkinson of Property Concept in Clifton Village, Bristol. She advises buyers to look outside the less popular areas because prices are rocketing in traditional student zones while rents remain static. Ultimately, the easiest way to hold down student debt is to stay at home and take the bus to your local campus.