So they got the grades and the blood, sweat and tears of early summer when revision prep seemed to be never-ending, can now be confined to exam folklore.
Student life is just around the corner. Your child’s school days are now officially over and these fully-fledged young adults are about to venture out into a whole new world.
And a whole new world of debt – if the latest figures from the Institute for Fiscal Studies are anything to go by. It says that on graduation young people currently have, on average, student debt of £44,000.
Debts are now inevitable for most students. Currently the tuition fee cap stands at £9,000 a year and this is set to rise in line with inflation to £9,250 in 20171. Living costs, of course, need to be added to this for students living away from home. Furthermore, as of Monday 1 August, grants for students from low-income homes have been replaced by loans, meaning students from families with annual incomes of £25,000 or less will no longer receive a grant of £3,387 a year2.
With these changes, some students are likely to end up saddled with starting debts of over £50,0003.
Going to university has become a very expensive business.
And none of these are small sums. Yet too few students – and their parents – are sufficiently prepared for the cost of student life.
Research from the Association of Investment Companies (AIC) shows that both students and parents underestimate the level of debt that students have when they finally come to graduate.
Students were the more realistic of the two, estimating they would leave uni with debts of around £30,000, whereas parents estimated £23,000. Almost half the true figure.
Despite largely taking a ‘head in the sand’ approach to funding their child’s university career, the research also showed that parents were willing to go to great lengths to see their children through university. Two thirds of parents were willing to use some of their cash savings, and alarmingly a fifth were prepared to use all or most of their cash savings. One in ten were even willing to take out a bank loan in their own name to help fund their child’s university costs. And it’s not just parents; a fifth of grandparents are contributing or plan to contribute to university costs.
Many parents will naturally feel uneasy at the thought of their children being burdened with such a large, long term debt and may be tempted to help them pay for their university education up front. With forward planning, this is achievable.
If your offspring are not quite at the ‘off to uni’ stage of their lives then you’re in a good position to start saving and investing now, so you’re both financially prepared.
Make use of your tax efficient ISA allowances and don’t forget your child has one too. Each child eligible for a Junior ISA can invest up to £4,080 in the current tax year. Grandparents, relatives and friends can all contribute too – so encourage generous friends and relatives to pop money straight into the Junior ISA at birthdays and Christmas times.
The earlier you start, the better. Our figures show that by saving just £31 a week into a Junior ISA as soon as your child is born can give them £41,886 over 18 years, assuming growth of 5% a year4. Increase that to £78.46 a week, the maximum allowed into a Junior ISA, and they could have an even more impressive £106,208 on their 18th birthday.
The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest into an ISA or Junior ISA and the value of tax savings depends on personal circumstances and all tax rules may change. Junior ISAs are only available to UK resident children under 18 who do not have and are not eligible for a Child Trust Fund (CTF). Please note that if your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your behalf so your child will not be eligible for a Junior ISA. The investment is locked away until the child reaches 18 years old. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.
1 Source: UCAS, August 2016 - https://www.ucas.com/ucas/undergraduate/finance-and-support/tuition-fees-and-student-loans
2 Source: BBC, August 2016 - http://www.bbc.co.uk/news/education-36940172
3 Source: The Intergenerational Foundation, August 2016 - http://www.if.org.uk/wp-content/uploads/2016/07/Graduate_Premium_final.compressed.pdf
4 Fidelity, January 2016, based on 5% growth per annum, 0.75% annual management charge and platform service fees
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.