University challenged

The Association of Investment Companies' (AIC) annual survey into attitudes towards university debt reveals that over three quarters (78%) of parents believe that the credit crunch will make it harder to support their child financially through university.

Many students (40%) are putting pay before their true career vocation in order to repay their student debt. Student debt is also having an impact on postgraduate studies with 10% of students scrapping plans to do postgraduate studies altogether and 15% of students putting postgraduate studies on hold until a time when they are better able to afford them. Debt is also influencing students' living arrangements with a sixth of students forgoing student life on campus or other away-from-home living and instead planning to live with their parents to save money.

A debt sentence

Students and parents are both underestimating the amount of debt they will graduate with because they have not taken into account the dramatic impact of top up fees. The NUS estimate top up fees will add an extra £7,000 to the debt students graduate with so students graduating this year will have around £13,000 of debt whereas students graduating next year who have paid top up fees will graduate with around £20,000 of debt. Students predicted they will graduate with £12,203 of debt whereas parents are way out in their estimate believing their children will finish their studies owing just £9,681.

In the past these estimates have been reversed, indeed last year's poll showed would-be students estimated their average level of debt on graduation would be under £8,000, whilst parents estimated it to be under £10,000.

Worryingly, nearly a quarter (23%) of students expect to still be paying back their debt more than 15 years after they graduate. And almost half (47%) fear they will be left with this debt for at least a decade. Only a lucky 9% of students will leave university without debt.

Student loan or parental help

More than half (55%) of students and 39% of parents expect undergraduates to rely on their student loan to pay for their studies, and just 16% of parents and 17% of students expect parents to fund their children through university. Only 11% of students plan to rely on part time work to fund their time at university compared to a more optimistic 26% of parents who expect their offspring will find work.

Financial sacrifice

Admirably, most parents (84%) are willing to make sacrifices to support their child at university. Two thirds (66%) would forego a new car; more than half (54%) would sacrifice their annual holiday, and 56% would give up dreams of moving to a larger house. Interestingly, 40% would even forfeit an early retirement.

Debt and career choice

Students' career choices are being influenced by university debt, with 40% saying they plan to look for better paid jobs to repay what they owe. Time will tell whether society will be adversely impacted by such a forced distortion within the job market.

Debt is also a barrier to postgraduate studies. 15% of students have decided to put their postgraduate studies on hold until they are better able to afford them, and 10% have had to scrap the whole idea altogether. Those choosing to continue their studies after university are expecting to accrue an extra £4,402 of debt for the privilege.

Living at home

More than a fifth (22%) of students will miss out on the experience of campus or other away-from-home living as they plan to live at home with their parents during their studies in order to save money and avoid extra debt. While this is a sensible strategy to help stay out of the red, it is a shame that so many students feel this is necessary.

More than half (55%) of students plan to go back home and live with their parents after graduation. However, 20% will only stay with Mum and Dad until they are in a stronger financial position.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: "The credit crunch and the rising cost of living will undoubtedly make it harder for parents to fund their children's university years. It's alarming that few of tomorrow's graduates or their families really comprehend the financial implications of top up fees and both have underestimated the amount of student debt they will face on graduation. Whilst there are many benefits that come with a university education, on graduation many young people find themselves struggling to repay their debt.

"We appreciate the financial strain many parents are under, but if it's at all possible to plan for the future, saving for your children for the long-term from an early age, can give them a financial head start in life. The sooner you start investing for your children, the better chance of greater returns. Investment companies can be an ideal way for parents to tap into the long-term potential of the stock market. They invest in range of companies, can spread investment risk and you can invest from as little as £50 a month.

"Of course many parents are concerned about the current stock market conditions but they need to take a long-term perspective. Parents should consider regular investing as this smoothes out the highs and low of share prices. An investment of £50 a month in the average investment company over the last 18 years has grown to £24,129."