Students and parents underestimate cost of university education

Both teenagers and parents alike are still massively underestimating the true cost of university, according to The Association of Investment Companies’(AIC) annual survey into attitudes towards university debt. With the average debt on graduation currently estimated at £13,252, many students could well be left with a painful shortfall.

Indeed, would-be students estimate their average level of debt on graduation will be under £8,000, whilst parents estimate it to be under £10,000. And with just over a quarter of parents (26%) expecting to stump up the cash themselves, no matter what the cost, some parents could be in for something of a financial shock.

Even so, this year’s figures suggest that both teens and parents have had some form of reality-check, with each upping their financial estimates from last year. This year’s would-be students estimate university debt on average to be £1,679 more than the £6,190 students predicted when asked the same question last year. Parents have also raised their expectations of university debt, adding a sizeable £2,975, over a third more, to the £6,849 of debt that they expected students to graduate with last year.

Unsurprisingly, parents and would-be students sometimes have rather different ideas about how students will pay their way through university. Would-be students were much more in favour of paying their way through university with loans (27% compared to only 12% of parents).

Financial sacrifice

Such is the expense of university education that almost all (93%) of parents are willing to make significant sacrifices in order for their children to attend university. Three in five (59%) would forego a new car; and more than half (53%) would sacrifice their annual holiday. Over a third (36%) would forfeit an early retirement, falling to 29% of those aged 55 to 64 years old. However, 7% of parents wouldn’t sacrifice anything, suggesting their children will have to go it alone.

Living at home

Interestingly, nearly a third (31%) of prospective university students expect to live at home in order to save money and avoid extra debt. While these students have taken a financially prudent decision to minimise future debt, it is regrettable that it should be for this reason that they will miss out on the experience of living away from home for the first time.

Funding their time at university

One fifth of would-be students (21%) expect their parents to pay for their time at university, whilst nearly one third of would-be students (31%) plan to work their way through university. More than a quarter (27%) will be forced take a loan in order to fund their studies. For parents, more than a third (36%) think their children will have to pay for their studies through part-time work, but only 12% think that they will have to take out a loan. Just over a quarter of parents (26%) expect to stump up mainly all the cash themselves, no matter what the cost.

Gap years

30% of teens are planning to opt for the additional expense of a gap year, enjoying their last bit of freedom before starting their studies at university. Given that the average expected cost of a gap year is nearly £4,000 – a significant sum for students to muster – it was interesting to discover how they planned to pay for their time out. Over half (53%) will be working their way round the world. Nearly one third (31%) have had the wisdom to save for this trip of a lifetime before they go away. And it was reassuring to learn that less than one tenth (8%) are planning to borrow from their bank to pay for their gap year.

Of those not planning to take a gap year just one quarter (24%) said that this was because they couldn’t afford to. More than half (51%) said travel simply did not appeal to them.

Daniel Godfrey, Director General, Association of Investment Companies (AIC) said: “Whilst it’s important to remember the many positives of a university education, it is a concern that so many parents and students still underestimate the true level of graduate debt. Unless parents and students start to really comprehend the financial implications of going to university, the shortfalls faced by tomorrow’s students could put them in serious financial difficulties right at the start of their working lives.

“We all appreciate the financial strain that many parents are under, but with some long-term financial planning, and if it’s at all possible, saving for your children from an early age can give them a financial head start in life. Investment companies can be an ideal way for parents to tap into the long-term potential of the stock market. A £50 per month investment in the average investment company has grown to £29,773 over the last 18 years. By investing in a range of companies on your behalf, they can help spread investment risk. All investment companies can be used to save for children and are available from £50 per month or a £250 lump sum. Many dedicated children’s savings schemes have lower entry levels still, so it’s worth taking the time to research the options which over the long-term, can really make a difference.”