Recession increases parents' struggle to fund university costs

The Association of Investment Companies (AIC) annual survey into attitudes towards student debt suggests that almost three quarters (74%) of parents think that the recession is making it harder to fund their children through university.

The recent announcement that student grants and loans will be frozen next year, while tuition fees will rise, will make financing university costs even harder, so students and their parents need to make sure that they are financially prepared. A £50 per month investment in the average investment company over the last 18 years would today be worth £18,297 and would go a good way towards plugging the average graduate debt which is estimated to be around £20,000 in 2010.

Get real? Students more realistic than their parents

Interestingly, the AIC's research suggests that students have a better handle on the costs involved than their parents. Nearly a quarter (24%) of students expect to graduate with over £20,000 of debt, whilst only 10% of their parents agree, suggesting many parents could be in for something of a financial shock. Worryingly, some 31% of parents expect their children to graduate with less than £10,000 of debt compared to 21% of students, whilst 34% of parents and 39% of students estimate the debt to be in the range of £10,000 to £20,000.

A debt sentence

Some 42% of students expect to be saddled with graduate debt for at least 10 years, with almost a third of students (30%) prepared to put salary before their true career aspirations in order to pay off their student debt quicker.

There has been a significant increase in the number of students delaying their post graduate studies with 11% saying that they would delay study on financial grounds and 11% changing their plans altogether. Interestingly, students are much more open to the idea of taking a ‘year out' to save for university (29%), possibly because they are more realistic about the costs involved.

Bank of Grandma and Grandpa?

Such is the financial strain of university some 12% of grandparents are stepping in to help fund university costs, with 32% of these contributing between £1,000 and £2,500 per year and 8% contributing over £4,000 per year. Of those families receiving financial help from grandparents, over a third said they now needed this help due to extra financial constraints caused by the recession.

Financial sacrifices

Parents continue to make very real sacrifices to help their children through university. Nearly a quarter (24%) of parents said that they would sacrifice their annual holiday this year to help with university funding and 19% would delay buying a new car. Some 16% would sacrifice home improvements, 11% would delay moving to a bigger home and 10% would delay early retirement. Over half (55%) of students said that they would have to take out a student loan to help fund their studies.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: "Clearly the recession is making it harder for today's parents to help fund their children's university education. It's particularly concerning in this economic climate that many students and parents fail to understand the true levels of debt they will face on graduation. Many young people go to university to enjoy the best years of their life but on graduation find themselves struggling to repay their debt for years.

"Of course parents are under increasing financial strain, but if you can save for your children for the long-term from an early age you can give them a financial advantage in life. The sooner you start investing for your children, the better chance of greater returns. Investment companies offer a useful way for parents to access the long-term potential of the stock market. By investing in a variety of companies on your behalf, investment companies can spread investment risk and they are available from as little as £50 a month, or £250 lump sum. If you had invested £50 per month in the average investment company over the last 18 years you would now have £18,297."

Wes Streeting, President of the National Union of Students, said: "It is only natural for parents to want to support their children through university, but the recession will make this much more difficult. Unfortunately, students are already racking up thousands of pounds of debt because of fees, and with graduate job prospects at an all time low many of them will be unlikely to be able to pay this debt off for years to come.

"It is a great shame that almost a third of students will put salary before their true career aspirations in order to pay off their debt quicker. That is why NUS believes that the amount that a graduate contributes towards the higher education system should be based on how much they earn.

"Taken as a whole, these statistics will make grim reading for many students or parents of students who are preparing to enter university in September. University vice chancellors should remember their plight when they consider calling for even higher fees in the forthcoming review of higher education funding."