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AIC student debt research 2020

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28 July 2020

Coronavirus puts off a fifth of school leavers from further education.

A fifth (18%) of young people aged 16 to 24 who are not at university, and not planning to go, cite coronavirus as a factor, according to research from the Association of Investment Companies (AIC) conducted by Opinium. 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, with parents from social grades C2DE being less likely to be able to help with the costs of university than better-off parents.

In the AIC’s survey, those planning to go to university are realistic about the costs, anticipating they will finish their course with average debt of £38,238. This closely matches the debt burden anticipated by students in their final year of university (£39,430), although the average parent is more optimistic (or naïve), expecting their children to leave university with debt of £23,905.

Just under a third (32%) of graduates finished university with, on average, £6,288 more debt than anticipated, whilst 58% graduated with debt in line with their expectations. Of those leaving with debt, nearly half (45%) do not think it will be cleared until they are over 50 and just 6% expect to clear it before they are 35. Only 2% of all those with student debt, including current students, think their family will help them with loan repayment.

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.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Regardless of high associated costs, going to university is still a key aspiration for many students and their parents. However, the average debt amongst graduates in 2018 was £36,0003 and parents are clearly underestimating just how big a loan their children will leave university with.

“It’s particularly worrying to see that a fifth of those not planning to attend university cite coronavirus as a reason, with the financial effects of the pandemic having an impact on students’ ambitions.

“Our research shows that parents consider helping with university costs to be their top financial priority for their children. Those with younger children, who have all-important time on their side, might consider 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.”

Coronavirus

COVID-19 has had an impact on current as well as prospective 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.

Funding children’s futures

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%. There is also a regional divide, with parents from London (77%), Wales (75%) and Scotland (72%) being more likely to contribute financially than those from the South West (56%) and Yorkshire and Humberside (55%). Nearly two-fifths (39%) of parents stated that coronavirus has made it more difficult for them to support their children through university.

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.

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 was more confidence among male students about their ability to repay their loan fully, with 48% anticipating this would 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.

Monthly investment in the average investment company to 30 June 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)

£1,761

£4,827

£15,195

 

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)

£3,521

£9,654

£30,389

 

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)

£7,043

£19,308

£60,778

Source: AIC/Morningstar

Lump sum investment in the average investment company to 30 June 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)

£7,278

£13,481

£28,183

Source: AIC/Morningstar

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

  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. Source: Student Loan Statistics, House of Commons, 2019.
  4. 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.
  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. As at the end of June, the AIC had 360 members and the industry had total assets of approximately £202bn.
  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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