University debt headache for parents
More than half of parents potentially underestimate the maximum amount of debt their child could leave university with, according to research from Standard Life.
When asked to take into account the increase in tuition fees to a maximum of £9,000 per year from 2012, and any other debts accumulated from living expenses, student loans, bank loans etc... 58 per cent of parents think the maximum debt their children could leave with is £40,000 or under, including many who think this would be a lot less. This total is well under the maximum figure of £54,000 calculated by the long-term savings and investment company Standard Life.
Despite this, a fifth (21 per cent) of parents have started to make regular savings to help ease the costs of their children's university education. And nearly a quarter (23 per cent) of parents are putting money aside on special occasions (e.g. birthdays or one-off windfalls).
Julie Hutchison, head of technical insight at Standard Life, said: "The findings of our research are positive as they show that parents have identified the need to save for their children's time at university. Unfortunately their expectations of what that cost could be and therefore the target amount they want to save might actually be too low."
Parents who have longer to save are taking full advantage, as more than half of parents (55 per cent) with children aged 0 to 9 are putting money aside for their child's university costs. Conversely seven out of ten (70 per cent) parents with children aged 14 to 17 aren't doing the same.
Julie continued: "Attending university is of course a worthwhile pursuit but can be expensive with the costs of tuition fees, living costs and course material all adding up over the years. Even though a student loan can be taken to cover all these outgoings, parents can also seriously help reduce these costs.
"Parents will need to decide when they want to gift the money to their child, as this will determine which savings method they should use. Do they give them the entire fund before they go to university, make partial withdrawals to help cover certain costs such as accommodation fees, or keep the money invested and help them clear their debt following graduation."
More than half (53 per cent) of parents who save on a regular basis are saving less than £50 a month towards their child's university costs, 27% are saving £50 - £100, 7 per cent are saving £101 - £200 and 4 per cent of parents are saving more than £200.
Out of the 56 per cent of parents who are not saving for their children's university costs, almost two-thirds (63 per cent) say they can't afford to at the moment, with one in ten (10 per cent) having just not considered it.
Julie said: "Parents can possibly identify where they can utilising a pre-existing payment that's coming to an end - this could be nursery fees, or a loan or credit card repayments. If they can continue to save this same amount it will allow them to make a saving towards their children's university debt, without impacting their own disposable income.
"If parents invest their money in the right tax-efficient savings product, such as an ISA or offshore bond and they can make their savings go a lot further. The tax benefits combined with the efficiency of compound interest could help grow their savings considerably and could make a significant difference to them achieving their financial goals and objectives."
The research also looked at the saving attitudes of grandparents of children under 18, with one in ten (9 per cent) saving for their grandchildren's university education on a regular basis, 16 per cent on occasions and 2 per cent as a one-off lump sum. Of those not saving, a quarter (24 per cent) have just not considered it, with 15 per cent thinking the child's parents are saving up sufficient funds.
Regionally parents in the Midlands are saving the most with 52 per cent putting money aside for their children's university costs. It's followed by London (48 per cent), Scotland (44 per cent), Southern England and East of England (both 42 per cent) with the North of England saving the least (39 per cent).