Parents and students underestimate student debt as A-Level results day approaches

The official figure is £45,000.

Student Debt cliff

A-Level results day (10 August) is a time of change and opportunity as teenagers across the country find out whether they have the grades they need for university. However, recent research from the Association of Investment Companies (AIC) conducted by Opinium shows that parents and students are both underestimating student debt.

Students planning to go to university expect they will finish their course with average debt of £37,803. This is close to the debt burden anticipated by students in their final year of university (£36,943). However, the average parent expects their children to leave university with debt of £24,852. All these estimates fall short of official figures which indicate the average debt of a student who finished their course in 2020 is £45,000.1

Two-thirds of parents (66%) are planning to help their children with university costs, but there is a large gap between parents from social grades ABC1, where 71% contribute or plan to contribute, and those from social grades C2DE, where the figure is 48%.

Parents are much more likely to use cash savings accounts for their children’s future than invest in the stock market. 59% of parents have used cash accounts, compared to 16% who have used investment companies and 15% who have invested in shares.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Despite the huge impact of the pandemic on students’ university experience, going to university is still a key aspiration for thousands of young people across the country. However, students and parents are both underestimating the average amount of student debt on graduation with parents particularly wide of the mark. This is despite two-thirds of parents planning to help finance their children’s university costs.

“Cash is the most popular way for parents to save for their children, even though ultra-low interest rates make real returns on cash savings almost impossible to achieve. Parents with time on their side might like to consider investing. Investing £50 a month in the average investment company over the past 18 years, £10,800 in total, would now be worth £37,648, enough for a young person to begin their career without a big debt burden.”

Monthly investment in the average investment company to 31 July 2021

Duration

5 years

10 years

18 years

£50 regular savings

     

Sum invested

£3,000

£6,000

£10,800

Overall weighted average investment company (ex VCTs)

£4,191

£12,308

£37,648

 

Duration

5 years

10 years

18 years

£100 regular savings

     

Sum invested

£6,000

£12,000

£21,600

Overall weighted average investment company (ex VCTs)

£8,382

£24,620

£75,296

Source: AIC/Morningstar. Share price total return to 31 July 2021.

Lump sum investment in the average investment company to 31 July 2021

Duration

5 years

10 years

18 years

£5,000 lump sum

     

Sum invested

£5,000

£5,000

£5,000

Overall weighted average investment company (ex VCTs)

£9,291

£15,961

£41,672

Source: AIC/Morningstar. Share price total return to 31 July 2021.

The effect of the pandemic

A quarter (26%) of young people aged 16 to 24 who are not planning to go to university cite COVID-19 as a factor in their decision, up from 18% last year. The most common reasons stated for coronavirus being a factor are that young people were concerned they would struggle to pay for university fees due to the financial impact of the pandemic and that they were worried that going to university might increase the risk of them catching the virus.2

According to the AIC’s survey, current students have also been affected. Nearly nine in ten (89%) students currently at university stated that COVID-19 has made their time at university worse value for money, an increase from 82% last year. The top three reasons given were the reduced face-to-face teaching hours (73%), a more limited experience of the social side of university (54%) and the impact on students’ mental health which had affected their university work (39%).

Graduates who were at university during the pandemic reported a similar level of disappointment. Four fifths (81%) said the pandemic made their time at university worse value for money due to the reduced amount of face-to-face teaching (87%), the limited experience of university social life (50%) and that the pandemic had reduced their chances of getting a job (36%).

Demonstrating the disruption of the past year, less than half (44%) of students agreed that their time at university is good value for money, down from 59% in 2020. Amongst graduates the figure is 46%, a decline from 55% in 2020. Over a quarter (27%) of young people planning to go to university considered not going because of the pandemic.

Will payback time ever come?

Most graduates (91%) took out a loan to finance their time at university, but fewer than one in five (18%) of these believe they will be able to repay it in full. Current and prospective students are more optimistic, with 34% of those who plan to have a student loan or who already have one expecting to pay it back in full. However, a further 29% think they won’t be able to pay it back, while the remaining 36% are unsure. There was more confidence among male students about their ability to repay their loan fully, with 45% anticipating this would be achievable, compared to 26% of female students. Students who anticipate they will be able to repay their loan think it will take an average of 13 years to pay it off.

When it came to understanding the terms of their loan, only 20% of graduates who had a loan said they were completely clear about how the interest on their loan was calculated and only 26% knew the interest rate they were paying on their loan.

Currently more than £17 billion is loaned to 1.3 million students each year. The value of outstanding loans at the end of March 2021 was £160 billion, with the government forecasting this will rise to around £560 billion by 2050.3

Saving for children hub

The AIC’s saving for children hub helps parents and grandparents find out more about saving for children with investment companies. There is a video, ‘Saving for your children’s future’, a ‘Saving for children’ guide, six tips on saving for children and a jargon buster. 

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Notes to editors

  1. Source: 2021 House of Commons briefing paper, Student Loan Statistics.
  2. 64 of 250 respondents (26%) who do not intend to go to university said that COVID-19 is one of the reasons behind their decision. Of those 64 respondents, 19 said they were worried that they would struggle to pay university fees because of the financial impact of coronavirus and 19 said they were worried that going to university might increase the risk of them catching coronavirus.
  3. 2050 forecast is in 2019/20 prices. Source: 2021 House of Commons briefing paper, Student Loan Statistics.
  4. The research was completed by Opinium Research on behalf of the AIC from 29 June to 13 July 2021. The parents research from 29 June to 7 July consisted of 1,005 online interviews with parents with children aged 13-21 who have gone / expect to go to university. The student research from 2 July to 13 July consisted of 1,000 students who are planning to attend university or are currently at university. The graduate research from 29 June to 7 July consisted of 200 graduates who have completed their degree in the last five years. The research among those who are not at university and do not plan to go consisted of 250 young people aged 16-24 and was conducted between 2 July and 13 July.
  5. 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 mission statement is to help members add value for shareholders over the longer term. The AIC has 362 members and the industry has total assets of approximately £257 billion.
  6. 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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