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Parents: don’t underestimate university costs

Parents: don’t underestimate university costs

Category: Savings

Updated: 06/07/2016
First Published: 06/07/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Seeing the children head off to university can be a bittersweet moment for many parents, but it can also be an expensive one – and unfortunately, many fail to realise just how expensive it can be.

New research from the Association of Investment Companies (AIC) shows that most parents considerably underestimate the cost of university – on average, they expect their children to leave university with debt of £23,000, yet in reality, last year's graduates left with an average debt of £44,000 (according to figures from the Sutton Trust).

Students are closer to the mark and predict an average debt of £35,000, although their expectations for repaying that debt are slightly less accurate. They expect to take an average of 17 years to pay off their student debt after graduation, yet Sutton Trust research suggests that three-in-four graduates will still be paying off student debts into their 50s.

This understandably leads many parents to want to do everything they can to help their children avoid such expensive debts, but this can mean they inadvertently put their own financial health at risk.

Empty nest, empty wallet

Indeed, a substantial number of parents (61%) say they're willing to help with the financial costs of university, yet 78% of those will be relying on their own cash savings. However, while 62% will just use some of their cash savings, 20% will use most or all of it, completely eroding their financial buffer.

Not only that, but 9% said they'd take out a loan to help fund their child's university costs, adding to their own level of debt, while 8% said they'd sell shares or financial investments.

It isn't just parents who can suffer the financial consequences of a child's degree, either, as the bank of Gran and Grandad also appears open for business. According to the survey, a fifth (20%) of grandparents are contributing or planning to contribute to children's university costs at an average of £2,402 per year, even though 25% are already financially contributing to everyday family expenses.

"The research suggests that many parents massively underestimate the amount of student debt their children will graduate with," said Annabel Brodie-Smith, communications director at AIC. "Parents are willing to make huge financial sacrifices to help their children through university, and many grandparents are sharing the financial burden, too."

Plan for the future

In order to prevent such a burden from occurring, Annabel recommends that parents plan ahead, ideally by making regular savings into an investment company saving scheme. This is a long-term form of investing and can be arranged from as little as £25 per month, and the sooner you start, the more you'll have available to help support your child when university arrives.

"A monthly investment of £25 over 18 years in the average investment company has grown to nearly £13,000, which would cover almost a third of the costs - a huge help," said Annabel. "Over the same time period, a £50 per month investment has grown to £25,830, showing the benefits of a little bit of forward planning."

What next?

Want to start saving for your child's future? You've got plenty of options, from children's savings accounts and junior ISAs to stocks & shares alternatives, and the sooner you start, the bigger the pot you could build for their future.

Disclaimer: 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.