Parents putting financial health at risk for university funding

Parents putting financial health at risk for university fundingWhy are parents putting their financial health at risk for university fees funding?

According to the Sutton Trust, graduates from English universities left with an average of £44,000 of debt last year.

New research from the Association of Investment Companies has found most parents underestimate this cost, putting their own financial health at risk as a result.

They found that parents, on average, expect their children to graduate with £23,000 of debt.

Students make more accurate predictions, still undershooting reality, but estimating debts of £35,000 on graduation.

It transpired that students also underestimated the length of time it might take to repay their debts from higher education.

On average, students think it will take 17 years to pay off university debts.

Research from the Sutton Trust suggests three in four graduates will be paying off student debts well into their 50’s.

Many students will no doubt fund their own education and take sole responsibility for repaying these substantial debts once they start working.

However, a lot of parents seem willing to help meet the financial costs of a university education.

The research by the Association of Investment Companies found 61% of parents are willing to help with the costs.

This rises to 73% for Londoners, but falls to 47% for parents living in the South West.

A significant proportion of parents will be relying on their cash savings to help children get through university, with 78% of parents planning to dip into savings for this purpose.

Whilst 62% of parents say they will use some of their cash savings, 20% will be putting themselves potentially at financial risk, saying they or their child’s other parent will use all or most of their cash savings.

9% of parents said they or their child’s other parent would take out a bank loan in their own name to help fund their child’s university costs, something that seems particularly drastic.

Some 8% of parents said they would sell shares or other financial investments.

According to Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC):

“The research suggests that many parents massively underestimate the amount of student debt their children will graduate with.

“Parents are willing to make huge financial sacrifices to help their children through university and many grandparents are sharing the financial burden.

“It’s worth parents planning ahead, if they can regularly save some money for the long-term in an investment company saving scheme.

“Parents think they need large sums of money to do this, but investment company saving schemes start from as little as £25 a month.

“Investment companies spread investment risk by investing in a diversified portfolio of assets on your behalf.

“A monthly investment of £25 over 18 years in the average investment company has grown to nearly £13,000, which would cover almost a third of the costs – a huge help.

“Over the same time period, a £50 per month investment has grown to £25,830, showing the benefits of a little bit of forward planning.”

When it comes to planning for the cost of further education, here at Informed Choice we suggest starting early.

The earlier you start saving or investing for the future, the less of a financial burden it becomes, as you can spread the cost over a longer period of time and take less investment risk to secure your financial goals.

University funding is something which often features within the Financial Plans we construct and monitor for our clients.

Do get in touch if you have children with university aspirations and we can schedule some time to talk about how these costs fit within your own Financial Planning.

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