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Should I stay or should I go?

10 August 2020

Expected university debts reach £38,238 as A-Level results day approaches.

Thursday 13 August is A-Level results day and teenagers across the country will be finding out whether they have the grades they were hoping for. For those planning to go to university, financing their studies is also likely to be on their minds.

Students planning to go to university anticipate they will finish their course with average debt of £38,238, according to research from the Association of Investment Companies (AIC) conducted by Opinium. This closely matches the debt burden anticipated by students in their final year of university (£39,430). But the average parent underestimates their child’s likely debt on graduation at just £23,905.

Two-thirds of parents (66%) are planning to help their children with university costs, but there is a big difference between parents from social grades ABC1, where 70% contribute or plan to contribute, and those from social grades C2DE, where the figure is 53%.

Parents are much more likely to use cash savings accounts for their children’s future than invest in the stock market. Some 62% of parents have used cash accounts, compared to 16% who have used investment companies and 12% who have invested in shares.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Going to university is a key aspiration for many teenagers and their parents, and our research shows that parents consider helping with university costs to be their top financial priority for their children.

“Given the costs are high, however, it’s important parents and guardians plan ahead to make sure their savings and investments meet their needs. Those with younger children who have all-important time on their side might consider 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 £30,006, enough to cover most of a typical student’s debt on graduation.”

Monthly investment in the average investment company to 31 July 2020

Duration

5 years

10 years

18 years

£25 regular savings

 

 

 

Sum invested

£1,500

£3,000

£5,400

Overall weighted average investment company (ex VCTs)

£1,743

£4,806

£15,003

 

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)

£3,486

£9,613

£30,006

 

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)

£6,972

£19,226

£60,011

 

Lump sum investment in the average investment company to 31 July 2020

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)

£7,182

£13,113

£31,589

Source: AIC/Morningstar. Performance is % share price total return to 31 July 2020.

The impact of COVID-19

A fifth (18%) of young people aged 16 to 24 who are not at university, and not planning to go, cited coronavirus as a factor. The most common reason stated for COVID-19 being a factor in their decision is that they would be concerned about paying fees due to the pandemic’s financial impact1. Nearly two-fifths (39%) of parents stated that coronavirus has made it more difficult for them to support their children through university.

COVID-19 has also had an impact on current university students. Over four-fifths (82%) of students currently at university stated that COVID-19 has made their time at university worse value for money. The top three reasons given were reduced teaching contact hours (68%), feeling less productive working from home (49%) and having a limited experience of the social aspects of university (41%). The overall proportion of current students who considered their time at university to be good value for money was 59%, compared to 55% among recent graduates.

Will students ever pay back their debt?

The vast majority (92%) of graduates interviewed took out a loan to finance their time at university, but just 18% of these think they will be able to repay it in full. Current and prospective students are more optimistic, with 36% 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 34% are unsure. There is more confidence among male students about their ability to repay their loan fully, with 48% anticipating this will be achievable, compared to 28% of female students. Students who anticipate they will be able to repay their loan think it will take an average of 14 years to pay it off.

Many graduates have sketchy knowledge about the terms of their loan. Only 19% said they were completely clear about how the interest on their loan was calculated, while only 21% knew the interest rate they were paying on their loan.

More than £17 billion is loaned to students each year. The value of outstanding loans to students who have graduated at the end of March 2019 reached £121 billion, with the government forecasting that this will rise to around £450 billion by 20502.

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. 

-Ends-

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Notes

  1. 46 out of 260 respondents (18%) said that coronavirus is one of the reasons they do not plan to go to university. Among those 46 respondents, the most common reason, cited by 16 respondents, was that they were worried about the financial impact of coronavirus.
  2. 2050 forecast in 2018/19 prices. Figures are from a 2019 House of Commons briefing paper Student Loan Statistics.
  3. The research was completed by Opinium Research on behalf of the AIC from 7 July to 17 July 2020. The parents research from 7 July to 15 July consisted of 1,001 online interviews with parents whose children have gone / expect to go to university. The student research from 7 July to 16 July 2020 consisted of 1,000 students who are planning to attend university or are currently at university. The graduate research from 7 to 14 July consisted of 205 graduates who have completed their degree in the last 5 years. The research among those who are not at university and do not plan to go from 7 to 17 July consisted of 260 young people.
  4. Investment company performance is the % share price total return of the overall weighted average investment company to 31 July 2020 ex VCTs and 3i.
  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 360 members and the industry has total assets of approximately £202 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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Annabel Brodie-Smith
Communications Director
Tel: 020 7282 5580
annabel.brodie-smith@theaic.co.uk
@annabelbrodies
@aicpress

Elmley de la Cour
Communications Manager
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elmley.delacour@theaic.co.uk
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William Sanderson
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