Quarter of students think they will be able pay back loans

University students and those planning to go to university, expect to graduate with an average debt of £41,697. This is lower than the Institute for Fiscal Studies (IFS) estimate that the average student will graduate with debt of more than £50,000.

But students’ expectations are realistic compared with parents’, who think that their children will graduate with an average £24,145 of debt – less than half the IFS estimate.

Most of those who have already graduated (54%) report that their debt is roughly what they expected. However, more than a third (35%) graduated with more debt than they expected, and among these, the average overshoot was £5,900.

Help with university costs remains the top financial priority for 48% of parents, with help towards a first home coming in second (34% of parents). Among students, that gap is narrower, with 43% prioritising help from their parents towards university costs and 39% preferring help with buying a first house.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), 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.”

Nearly two-thirds of parents (65%) are planning to help their children with university costs or do so already. Not surprisingly, wealthier parents are more likely to help, with 69% of parents from social grades ABC1 expecting to be able to meet some university costs compared with 54% of those from grades C2DE. Single parents are much less likely to contribute (48%) than those who are married (69%).

Parents are much more likely to tuck money away in cash savings accounts for their children’s future than to invest it in the stock market. Some 62% of parents have used cash accounts, compared to 13% who have used investment companies, 13% who have invested in shares, 8% who have bought property and 7% who have used unit trusts or OEICs.

Among current university students and those planning to go to university, just 26% think they will be able to pay back their student loan in full. In contrast, 38% think that they won’t be able to pay it back, while the remaining 36% are unsure.

Men are more confident than women of being able to pay back their loan, with 34% of men with a student loan expecting to do so compared with 23% of women. Also more confident are students from Scotland, with 52% expecting to make a full repayment – probably not surprising given that university tuition is free north of the border.

Those students who anticipate they will be able to repay their loan think it will take an average of 14 years to pay it off.

Among graduates, only 13% who have taken out a student loan think they will ever repay it in full, with 62% thinking they won’t and 24% unsure. Barely half of graduates who have a student loan (53%) understand how the interest on their student loan is calculated, and fewer than a quarter (24%) know the interest rate they are being charged.