Graduates likely to notch up debt of £53k

12th August 2013

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Students and their parents are hugely underestimating the costs of going to university but some parents say they would even considering retiring later to help fund the cost.

The average debt for students starting at a UK university in 2012 is expected to be a whopping £53,000 but students estimate the average at £24,436 while parents are even further away at £18,333 says trade body the Association of Investment Companies.

The research suggest that 33% of parents expect to use some of their cash savings to help fund university costs, whilst a further 10% say they will use all or most of their cash savings.  A further 5% will sell their shares and investments, 4% of parents will take out a bank loan in their own name, and 3% of parents say they will downsize the family home.

Over three quarters (79%) of parents say that the tough economic climate is making it tougher to fund their children through university, although this is down on last year (86%).  Even still, it is not surprising to see that 14% of students’ grandparents are stepping in to help to an average tune of nearly £2,000 per year (£1,967). This is up from 11% in 2011 and 13% in 2012 while 62% of parents say this is directly because of the tough economic climate we are living in.

Whilst 13% of parents expect their children to mainly finance their time at university by part time work, just 7% of students plan to do so.  While 18% say they are likely live at home whilst at university to save money, nearly half or 45% of parents expect their children to live at home.

When it comes to tuition fees, there are polarised views between the generations.  Whilst some 23% of parents would recommend that their child choose a lower charging university, only 6% of those expecting to go to university agree.  Some 89% of those expecting to go to university say they won’t be influenced by the level of tuition fees.

Help on the housing ladder, or help with university fees?

When asked what they would most like financial assistance with, it is clear that as well as being mindful of the cost of university, young people are also acutely aware of the difficulties of getting on the housing ladder.  Whilst nearly half (48%) of students would prioritise help with university costs, over a third (34%) said they would rather have help towards a first property.  Parents appear much more focussed on helping with university costs (60%), whilst only 23% would prefer to prioritise helping their child with their first property.  Some 8% of young people would prefer to have financial help buying a car, and 5% would prefer help towards going travelling.

Parents are willing to make sacrifices to help fund their children through university.  A quarter would forgo annual holidays, a fifth a new car, and 12% would even put off early retirement.  A further 10% would put off moving to a bigger home, and 9% would ditch home improvements.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Families are clearly feeling the strain of spiralling university costs, and in some cases parents have very different views to their children on how they might negate some of these costs.  Our research showed the generations had polarised views on key issues with many more parents than students expecting their children to live at home and choose a lower charging university in order to save money.

“As the tough economic climate continues to bite, it’s interesting to see families increasingly turning to the bank of grandma and grandpa.  Whilst parents in particular seem to be underestimating the true cost of university, they are clearly prepared to make very real sacrifices to help fund their children through university, with many using their life savings and in some cases even taking out loans in their own name.

Annabel Brodie-Smith continued: “Whilst it’s never going to be easy to build up the huge sums of money that a university education can now entail, a little forward planning could definitely remove a good deal of the burden. Investment companies can be a useful way to tap into the long-term potential of the stock market by investing in a range of companies on your behalf, and they cover a variety of sectors and risk profiles. A small investment can be worthwhile over the long-term, with a £50 per month investment in the average investment company over 18 years to the end of June growing to £24,835 whilst a lump sum investment of £1,000 over the same time frame growing to £4,180.”

Share price total return to 30 June 2013

Duration   (years)

1

5

10

18

£100   Lump sum
Sum   invested

£100

£100

£100

£100

average   investment company less 3.5%

115

134

283

418

£50   Regular savings
Sum   invested

£600

£3,000

£6,000

£10,800

average   investment company less 3.5%

629

3,965

9,581

24,835

Lump Sum Equivalent of Regular Savings
Sum   Invested

£600

£3,000

£6,000

£10,800

average   investment company less 3.5%

693

4,021

16,997

45,115

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