Parents urged to start saving early to get kids through university
While many parents might be sending their kids off to school for the first time today, they are already being warned to start saving early to minimise the financial impact of future university costs, with the total cost of a three year course reaching £61,000 in 2016.
According to new research from Killik & Co while the costs of university are rising, default student loans are not managing to keep up resulting in a student deficit of around £1,000 to £4,000 per year.
To help bridge the gap, the reports states additional parental support, or some form of alternative funding is necessary to avoid a life of debt after. Indeed according to a recent report from Aviva, 37% of 2,000 people who attended university regretted doing so given the amount of debt incurred.
If students are not in a position to repay their student loan immediately upon graduating, which most aren’t, Killik & Co warns that it becomes the most expensive way of funding university. This is because the outstanding loan balance beings incurring interest at a 3% rate above inflation even while students are still at university, with the end result being that repayments may end being double the original size of the loan.
All is not lost though. By using the the power of compounding and starting saving early, Killik & Co says parents can make interest work for them and minimise the financial impact of university costs.
Sarah Lord, partner and director of wealth planning at Killik & Co, says: “As little as £2.56 saved each day from the day your child is born (and invested at the end of every week) could result in an inflation adjusted savings pot of £28,500 (based on a 5% return) by the time they are 18, compared with the £16,807 this would represent if purely saved in cash alone. Even if you wait until your child is five and £4.08 a day, the principle is the same.
“With foresight and some early financial planning, making use of compounding through investing alongside making the most of a family’s annual allowances (such as the £3,000 gift allowance) both parents (and grandparents) can make investments work for potential students, rather than against them, thus minimising the total cost of university and wider financial impact on their adult life. This approach will be crucial, in order to ensure the family’s finances are protected and graduates are not entering employment on the financial back foot”