Real level of student debt more than double parents’ estimates
Undergraduates and those planning to go to university expect to graduate with an average debt of £41,697, while parents predict their children will finish university with a debt of just £24,145, according to a poll for the Association of Investment Companies (AIC) conducted by Opinium Research.
But the IFS says a debt of more than £50,000 is more likely, more than twice the average amount parents predict.
Paying back student loans
The AIC found nine in 10 students have a student loan or plan to have one, but only 26 per cent think they will be able to pay it back in full.
The figure is lower among graduates with a student loan, with only 13 per cent expecting to clear it within the 30-year period before it is written off. Nearly two-thirds (62 per cent) think they won’t repay the debt, while 24 per cent are unsure.
Barely half of graduates who have a student loan (53 per cent) understand how the interest on their student loan is calculated, and fewer than a quarter (24 per cent) know the interest rate they are being charged.
Students attending university now will be on plan 2 student loans. Repayments on this type of loan begin when you earn more than £25,725 a year, £2,144 a month or £495 a week. Any debt remaining after 30 years is written off.
Help with university costs remains the top financial priority for 48 per cent of parents, with help towards a first home coming in second (34 per cent of parents), according to the AIC.
Among students, that gap is narrower, with 43 per cent prioritising help from their parents towards university costs and 39 per cent preferring help with buying a first house.
Annabel Brodie-Smith, AIC communications director, said: “Despite the high costs of going to university, it’s still a key aspiration for many parents and students. Parents are prioritising helping their children with university costs over helping them to buy a first home, and students agree university is the higher priority.
“However, parents are underestimating just how much debt their children will leave university with. Their estimates of debt on graduation are wide of the mark whether you compare them to students’ own estimates or graduates’ experiences.
“Our research also suggests that despite low interest rates, cash accounts remain the most common way for parents to save towards their children’s future. Those with younger children, who have time on their side, might consider investing in the stock market for long-term growth. Over the past 18 years, investing £50 a month in the average investment company would have grown into £32,721, covering most of students’ expected debt on graduation.”