University may have been pushed out of reach of many young people afraid they can no longer afford to go, according to research for the Association of Investment Companies.
The effects of coronavirus will be felt long after the economy recovers as fewer young people believe the opportunity is open to them and parents warn it will be harder to fund their childrens’ university education as the average cost balloons to £36,000.
Research by the Association of Investment Companies (AIC) shows the Covid-19 pandemic, which has derailed the global economy, will have far-reaching effects that could damage job and financial prospects for a whole generation of young people.
Almost a fifth, 18%, of young people aged 16-to-24 who are not currently at university and are not planning to go, cite coronavirus as a factor as they are concerned about paying the fees. Those surveyed said they expect to leave university with an average debt of £38,283 although the average parent underestimated the cost at £23,905.
Annabel Brodie-Smith, communications director at the AIC, said the average debt among students graduating in 2018 was £36,000, meaning parents who underestimate the cost will have a large shortfall to make up.
‘Our research shows that parents consider helping with university costs to be their top financial priority for their children,’ she said.
For those with younger children, Brodie-Smith said now was the time to start investing for their university education and ‘harnessing some of the long-term growth potential of the stock market’.
‘Over the past 18 years, investing £50 a month in the average investment company would have grown into £30,389, covering most of a typical student’s debt on graduation,’ she said.
Investing £100 a month over 18 years to 30 June this year into an overall weighted average investment company would have netted £60,776 but for those parents who didn’t start earmarking savings for university from birth, there is no need to give up hope.
Investing over five or 10 years can still provide a child with a decent lump sum to offset against their student debt. Investing £50 a month over 10 years into an average investment company would have provided a return of £9,654, including the £6,000 originally invested.
Parents investing £100 over 10 years would provide their offspring with a £19,308 nest egg.
The AIC also calculated the return on a £5,000 lump sum invested in the average closed-ended fund over five, 10, and 18 years to 30 June; it would today be worth £7,278, £13,481, and £28,183 respectively.
Whatever the size of the nest egg, it will no doubt be gratefully received by students as 45% do not think they will be able to clear their debt until they are over 50.
The vast majority, 92%, of students take out a loan from the government but just 18% believe they will ever repay it in full.
More than £17bn is loaned to students each year, with the value of outstanding loans hitting £121bn at the end of March last year, and the government expects outstanding loans to hit £450bn by 2050 as the cost of education grows. In 2010, under the then coalition government, tuition fees were hiked from £3,000 to £9,000 a year sparking protests across the country.
The high cost of education has led many to question whether it is value for money. Over four-fifths, 82%, of those surveyed by the AIC said Covid-19 had made university worse value for money due to reduced teaching contact, feeling less productive, and restrictions on socialising.
Nevertheless, applications to universities have so far not been affected.
A record 40.5% of all UK 18-year-olds have applied to university, according to Ucas figures released last month. Looking at all applications made by 30 June suggested that 281,980 school leavers had applied, up from 275,520 last year, despite there being fewer 18-year-olds in the population.