Students who thought they were going to be able to leave university with minimal debt may find they're disappointed, with research from the Institute for Fiscal Studies revealing that the average debt students will have on graduation is a whopping £50,000 – yet many underestimate it.
A survey from the Association of Investment Companies (AIC) found that both parents and students considerably underestimate the amount of debt graduates will have, with parents expecting their children to leave university with an average debt of £25,709 – almost half the actual figure – while students themselves believe they'll graduate with debt of £37,396. Closer, but still way off the mark.
This kind of debt could take a long time to pay off, too, with 41% of students saying they think it'd take them more than 20 years to repay – yet this figure rises to 64% among those who have already graduated, highlighting just how difficult it can be.
Perhaps understandably, many parents want to help ease their children's financial burden, with 64% saying they're planning to or currently contribute to their child's studies. Students agree, with 65% saying it was "realistic" that their family would help them financially while at university.
However, many parents have other financial priorities in mind when it comes to helping their children – providing help towards university costs still tops the list, with 43% of parents citing this as their top priority, but this has fallen by 10% compared with a year ago. Instead, 38% now cite helping towards buying a first property as their greatest priority, up from 28% this time last year.
Students' wishes mirror that of their parents: the proportion who said that help towards university costs would be their greatest priority if their parents could offer financial assistance has fallen from 51% to 47% over the last year, while those favouring help towards a first property has risen from 30% to 33%.
The research went on to reveal that cash is parents' method of choice for financial contributions, with 55% using some of their cash savings – and 16% using all or most of it – while 60% have saved specifically in a cash savings account to help towards their child's future.
Yet this may not be the best way to go about it. After all, cash savings rates are incredibly low at the moment – even the best savings accounts on the market can't beat inflation, which means your savings are being eroded in real terms – so opting for more of an investment product could be well worth considering. Only 15% of parents surveyed currently save in an investment company for their child's future, but the potential returns on offer could be far greater, as Annabel Brodie-Smith, communications director at AIC, explains:
"University costs remain parents' greatest financial priority for their child, [but] many parents massively underestimate the amount of student debt their children will graduate with and are willing to make considerable financial sacrifices.
"It's worth parents planning ahead by saving some money for the long term in an investment company saving scheme, which spread investment risk by investing in a diversified portfolio of assets on your behalf.
"If you had regularly invested £25 per month in the average investment company saving scheme over the past 18 years, this would have grown to £15,987, almost a third of the cost required to help clear the average student's debt. If parents could afford to save a bit more and contribute £50 a month, this would have grown to an impressive £31,974, and £100 a month would have grown to a staggering £63,948 - enough to clear their child's student debt and have money left over!"
As you can see, this kind of forward planning could seriously pay off! It needn't take much to get started, either. It's possible to start saving in such a scheme from just £25 a month, but you'll need to be prepared for the fact that it's much higher risk; there's the chance that your investment could go down as well as up, but if you're planning on saving for the long term, this should hopefully level out any volatility.
Opting for a stocks & shares ISA could be another great way to go if you're considering an investment rather than cash savings. Again, you'll need to be prepared for the higher level of risk involved, but any returns will be entirely tax-free – something that could boost your savings even more. Check out our stocks & shares ISA page to get started, and hopefully your child won't need to face £50,000 debt on their own.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.