Delighted that your children have got the grades to head off to university? Less delighted perhaps when you read the figures that, according to recent research by the Institute for Fiscal Studies, the average debt for a student over the course of their studies is £51,000.
This figure includes tuition fees of £30,000, then there’s accommodation, utilities, food, travel, studying materials and everything else involved with being a student.
In fact, the overall student debt is a colossal £100bn – higher than the national credit card debt.
Added to which, the rate of interest on student loans is rising to 6.1%, while the Bank of England base rate remains at a mere 0.25%. This means the average student will have accumulated £5,800 worth of interest by the time they graduate.
The truth is 75% of those with loans won’t pay it all back, despite making repayments into their 50s, before the government write the debt off after 30 years.
It’s not surprising that many students have been deterred from going into higher education with the figure reaching the lowest in eight years.
Fortunately, parents often step in to the rescue. Research has found that 61% of parents are willing to help with the costs of university but as they rely on their own savings to do so, 20% of them will be jeopardising their financial health. Many totally underestimate the cost, believing it would be more like £23,000 than the reality of over £50,000. To provide the necessary funding, some sell shares or investments or even take out a bank loan.
But while parents may underestimate the amount of student debt, many overestimate how much it costs to invest in the stock market. There seems to be the perception that large sums of money are required to invest in stocks and shares. There are, however, investment company saving schemes, which start from as little as £25 a month, and spread the investment risk by investing your funds in a diversified portfolio of assets. A monthly investment of £25 over 18 years in a scheme with average returns would have the potential to grow to nearly £13,000. This would help cover at least some of the costs!
The important factor is to start early and plan ahead. Some may even start saving before their child is born. And if you’re considering independent education for your children as well as hoping they go to university, that might sound sensible. But make sure you’re investing your money in the right place, not setting it aside somewhere where it has no potential to grow.
As well as the company investment schemes already mentioned, there are various other options you may wish to consider such as Junior ISAs, (the cash and stock and shares version) or accessing a lump sum from your pension pot. Your child may also have grandparents who wish to contribute to their education through gifting up to £3,000 a year or by setting up a trust.
It’s important to get the right option for you so do seek independent financial advice. This way, as your home becomes an empty nest, you can enjoy the fact your child is in higher education, without it meaning empty coffers as well!