Parents and students underestimating student debt
7 August 2018
Parents and students are significantly underestimating the level of student debt, according to new research from the Association of Investment Companies.
Current students or those planning to go to university expect to leave with an average of £37,935 worth of debt, while parents expect that figure to be a much lower £23,954. However, both were far below that of the Institute for Fiscal Studies, which last year forecast that student debt would rise to over £50,000.
Perhaps unsurprisingly, 42% of students that are expecting to leave university with debt felt it would take them more than 20 years to repay it. This trend is mirrored among graduates, with 55% of those that left with student debt also expecting it to take them more than 20 years to repay it. An overwhelming majority (88%) said they will be paying off their debt fully themselves, and 41% think they’ll be at least 50 by the time they will have cleared all their student debt.
Yet, despite the costs, 61% of students said they never considered not going to university.
While the burden of university costs remains a top priority for parents (48%) and students (43%), there is also growing concern among students about getting on the housing ladder. This year, 38% of students said their key financial priority was help towards buying a first property, up from 33% in 2017. The opposite was true for parents, with 34% rating buying their children their first property as their top priority, compared to 38% in 2017.
Of those students whose family contributed to a savings scheme for their future, nearly half (46%) said they would use it to buy their first property, while 27% said it would be used for university costs.
Two thirds (66%) of parents who had saved for their child’s future did so through a cash savings account, with cash still proving king. Saving in an investment company was cited by 15% of parents, while 12% opted for bonds.
Commenting on the results, Annabel Brodie-Smith, communications director, AIC, said: “Like last year, parents still underestimate the amount of student debt their children will graduate with but those who have a long time to save towards their children’s futures may want to consider alternative options to cash to try and get the most from their savings.
“Interest rates are still near record lows and this will have had a significant impact on cash savings. Parents may want to consider investing part of their savings in the stock market for long-term growth opportunities. £50 a month over the past 18 years invested in the average investment company would have grown to £35,125, clearing a significant portion of the estimated student debt of around £50,000. £100 a month would have grown to £70,250, which would clear their student debt and leave some left over to put towards a deposit for their child’s first home.”
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