Debt worries weigh heavily as A-level results day approaches

The ever-growing burden of financing university is weighing heavily on both students and parents as A-Level results day approaches (Thursday 18 August), with more grandparents than ever helping to take the strain, according to research released today by the Association of Investment Companies (AIC)¹.

Students have a more realistic idea than parents of likely debt on graduating, but both underestimate the amount. Official statistics suggest that the average student will graduate with £45,800 of debt, including student loans². But students estimate this figure at £38,514, and parents undershoot by a third with an estimate of £30,414.

Debt is a major consideration for students planning to go to university, but also a major factor in the decision of some students not to go. Two-fifths (40%) of students with no plans to go to university identified not wanting to get into debt as one of the reasons, while 36% said tuition fees were too high.

Among students currently at university, 34% say they considered not attending due to the costs involved. Only half (51%) agree that their time at university is good value for money. Covid has had an impact on students’ satisfaction levels, with four-fifths (80%) agreeing that the pandemic has made their time at university worse value for money.

Graduates are not optimistic about their ability to repay their debt. Of those who left university with a debt, half (50%) don’t think it will be cleared until they are over 50, and just 4% expect to clear it before the age of 35. The majority (56%) of graduates who have taken out a student loan expect never to repay it in full.

Covering the cost

Nearly two-thirds (65%) of students say it is realistic that their family can help them financially while they are at university. This is highest among students of social grade ABC1 (76% versus 45% for C2DEs).

On average, those parents who contribute to their children’s university costs expect to stump up £9,025 a year, or a total of £27,074 across a standard three-year course. But over three-quarters of parents (77%) say that the rising cost of living has made it more difficult for them to help out.

Nearly three in ten parents (29%) say that their children’s grandparents will be contributing to their children’s university costs, with an average contribution of £4,469 a year. Two years ago, 22% of parents said grandparents would be contributing and their average annual contribution was £3,365³.

Around one in seven parents (15%) say they expect to use all or most of their cash savings to help get their children through university.

Nick Britton, Head of Intermediary Communications at the Association of Investment Companies (AIC), said: “University students in the UK face a high debt burden, and it’s sobering to see how this is putting some young people off even attempting a university degree. Clearly, not all families can afford to help with the costs of university, and some of those who can are stretching themselves to the limit, with one in seven using all or most their cash savings to get their children to that long-awaited graduation ceremony – only to see their children saddled with a five-figure debt.

“Over the years we’ve done this research, we’ve seen the Bank of Grandma and Grandad play a greater role in getting children through university. This year three-tenths of parents said that grandparents were helping out, more than ever before. Money worries have been further compounded by the rising cost of living, with three-quarters of parents saying that this is making it harder for them to contribute.”

Savings and investments

Over four-fifths (83%) of parents have made savings or investments towards their children’s future⁴. Cash savings accounts are the most popular way to save, with 57% of all parents using them. Other investments that parents have made towards their children’s future include investment trusts (16%), shares (15%), bonds (12%) and property (10%). A brave 7% have invested in cryptocurrency (77 respondents).

Only a minority of parents realise that they can make small, regular investments in the stock market, with 27% identifying the minimum amount that can be invested as either £25 or £50 per month⁵. Nearly a third (32%) of parents think they would need £100 a month or more to set up a regular monthly investment in stocks and shares, while even more (41%) don’t know.

Saving regularly can bring significant long-term benefits. A monthly investment of £50 in the average investment company, for example, would have grown into £29,509 over the past 18 years, enough to pay off the majority of the typical student debt on graduation.

Nick Britton, Head of Intermediary Communications at the Association of Investment Companies (AIC), said: “While it’s understandable that cash savings are a popular way for parents to put some money aside for their children’s future, today’s high inflation and low interest rates mean that the real value of those cash piles is being whittled away at an alarming rate. Meanwhile, those with younger children have time on their side, which puts them in a good position to take advantage of the higher potential returns available from investing in the stock market over the long term.

“For example, an investment of £50 a month in the average investment company would have grown to £9,994 over the past ten years for a total investment of £6,000, or £29,509 over the past 18 years for a total investment of £10,800. Clearly, returns aren’t guaranteed and the stock market can go down as well as up. Those who aren’t sure about the best way to invest should consult a financial adviser.”

Monthly investment in the average investment company to 31 July 2022

Source: AIC/Morningstar. Share price total return to 31 July 2022. Average investment company is overall weighted average excluding VCTs.

Lump sum investment in the average investment company to 31 July 2022

Source: AIC/Morningstar. Share price total return to 31 July 2022. Average investment company is overall weighted average excluding VCTs.

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Notes to editors

1. The research was conducted by Opinium and commissioned by the AIC. Opinium surveyed 1,024 students who are at university or who are planning to go; 1,032 UK adults with children aged between 13 and 21 who are at university or who are expected to attend; 226 graduates who have completed their degree in the last five years; and 276 students who are not at university and who are not planning to go. Fieldwork was conducted between 5 and 11 August 2022 inclusive.  
2. The forecast amount of debt among the cohort of borrowers who started their course in 2021/22 was £45,800. Source: House of Commons Library, Student Loan Statistics (19/07/22).
3. In the 2020 research, 22% of parents said that grandparents were contributing or planning to contribute to their children’s university education. Among those who expected grandparents to contribute, the average expected contribution was £3,365 a year. In the 2021 research, those figures were 25% and £4,044 respectively.
4. 83% of all parents surveyed have made savings or investments towards their children’s future, i.e. 83% of all parents with children aged between 13 and 21 who are at university or who are expected to attend. See note 1.
5. Typical minimum monthly investments for stocks and shares ISAs range from £25 to £50. Source: Moneysupermarket.com.  
6. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s vision is for closed-ended investment companies to be considered by every investor. The AIC has 357 members and the industry has total assets of approximately £267 billion.
7. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.
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