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Students estimate their debt will total £38,238

Emma Lunn
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Emma Lunn

With student debt increasing, and Covid-19 impacting university life, is it still worth going away to study?

With A-level results due out this Thursday, teenagers across the country will be finding out whether they have achieved the grades they were hoping for.

For those planning to go to university, financing their studies is also likely to be on their minds.

According to research by the Association of Investment Companies (AIC) conducted by Opinium, students planning to go to university estimate they will finish their course with an average debt of £38,238.

This closely matches the debt burden anticipated by students in their final year of university, which stands at an average of £39,430.

However, parents typically underestimate how much debt their offspring will have on graduation, with the typical parent putting the figure at just £23,905.

Parental help

According to the AIC, two-thirds of parents (66%) are planning to help their children with university costs.

The AIC found parents are more likely to use cash savings accounts for their children’s future than invest in the stock market. Two thirds (62%) of parents have used cash accounts, compared to 16% who have used investment companies and 12% who have invested in shares.

Annabel Brodie-Smith, AIC communications director, said: “Going to university is a key aspiration for many teenagers and their parents, and our research shows that parents consider helping with university costs to be their top financial priority for their children.

“Given the costs are high, however, it’s important parents and guardians plan ahead to make sure their savings and investments meet their needs. Those with younger children who have all-important time on their side might consider the long-term growth potential of the stock market. Over the past 18 years, investing £50 a month in the average investment company would have grown into £30,006, enough to cover most of a typical student’s debt on graduation.”

The impact of Covid-19

The AIC also questioned young people who are not at, or not planning to go to, university. A fifth (18%) of those aged 16 to 24 who are not at university, and not planning to go, cited coronavirus as a factor.

The most common reason stated for Covid-19 being a factor in their decision is that they would be concerned about paying fees due to the pandemic’s financial impact.

Four in 10 (39%) parents stated that coronavirus has made it more difficult for them to support their children through university.

Covid-19 has also had an impact on current university students. More than four-fifths (82%) of students currently at university stated that the pandemic has made their time at university worse value for money.

Will students ever pay back their debt?

According to a House of Commons briefing paper on Student Loan Statistics, more than £17bn is loaned to students each year.

The value of outstanding loans to students who have graduated at the end of March 2019 reached £121bn, with the government forecasting that this will rise to about £450bn by 2050.

But despite the high figures, most graduates will never have to pay off their student finance.

Kay Ingram, director of public policy at financial group LEBC, said: “The majority of graduates will never pay back their student loans in full and should not attempt to do so unless they expect to have continuous high earnings for 30 years after graduation.

“Unlike other types of loans, student debt is wiped off after 30 years. The amount paid by the graduate depends on their income, not the amount borrowed and is levied at 9% of income above £26,575. Those who earn less than this pay nothing.

“The Institute of Fiscal Studies estimates that only 30% of student debt will ever be paid off. While this may be worrying for the taxpayer, graduates who are not expecting  a high earning career would be better off to use their savings for other purposes such as paying off credit cards or saving for a home deposit or saving for retirement.