Record number of university places may lead to record graduate debt burden13 August 2015
With thousands of students in England, Wales and Northern Ireland finding out the their A-level results today, the UCAS admissions service has confirmed a record number of students have been accepted on university courses with 409,000 places already confirmed ahead of the scramble through the clearing system.
With more teenagers heading into higher education, alongside this comes the burden of funding the costs of a degree, with costs escalating in recent years.
But with ever more teenagers heading into higher education, alongside this comes the burden of funding the costs of a degree. The costs of a higher education have escalated in recent years, with the National Union of Students estimating that the average expenditure in 2013/14 (the latest data available) comprising fees and living costs for a degree in London was £23,187 and £21,440 for the rest of England, meaning the cost of a three year course is likely to be in the region of £70k once inflation and interest costs are factored in.* The satisfaction of graduating from university with a good degree can be severely dampened by the spectre of debts that could take years to pay off. Indeed a recent survey of those who have graduated since the introduction in the rise in tuition fees in 2012, reveals the majority (56%) do not believe their degree was worth the cost of the tuition fees.**
Jason Hollands, Managing Director at private client investment and financial planning group Tilney Bestinvest said: “Yearly increases in the number of students going into higher education means the UK is seeing more and more graduates, many of whom leave university with significant debts that can take many years to clear. While most parents will no doubt expect their child to accumulate some debt over their time in higher education, many will still be surprised by great size of these debts. In fact the Association of Investment Companies recently released research suggesting that parents, on average, underestimate the size of their child’s debt on leaving university by over £26,000.***
“Parents and grandparents who aspire for their children or grandchildren to eventually go on to university should take heed of this and plan well ahead. The key factor is to start saving as early as possible. Based on an assumption of achieving an average return of 5%, net of charges, each year you would need to invest £200 a month for 18 years to generate approximately £70k. However, add in an inflation assumption of, say 2% (the Bank of England’s long-term target), and the required sum is more like £280 per month for 18 years.
“To illustrate the impact of delaying however, if you only start accumulating a savings pot 10 years ahead of the date that the funds are required (when the child is eight) then the annual sum to be saved will need to be around £540 per month (based on the above return and inflation assumptions). There is of course a good deal of uncertainty in these assumptions, as inflation (particularly in education costs) could be much higher, equally you may find markets deliver higher returns than the 5% assumption we have used.
Junior ISAs – A first port of call… but not the whole solution
“A simple way to start saving for your child would be to invest in a Junior ISA. These are open to any child under the age of 18 who does not already hold a Child Trust Fund. Parents and guardians can invest up to £4,080 for the tax year 2015/16. While certainly a neat sum, if you have begun to save late in the day this could prove insufficient in itself, and you may need to consider additional savings plans such as use of bare trusts.
“Investing into a JISA can be done either through regular monthly savings or through lump sum investments into an account that can hold cash or stocks and shares (or funds investing in stocks and shares). All returns accumulate free of tax on gains and Income Tax as the value of the Junior ISA builds over time. At age 18 full ownership of the account passes to the child, enabling them to either withdraw funds or continue with the investments as an adult ISA.”
“While cash is an eligible investment in a Junior ISA, we don’t think this is the right place to park money for the long term. Its real value will slowly be eroded by inflation over time.”
Funds suitable for a Junior ISA
Hollands continued: “For those starting early, it makes sense to focus on equities, which while volatile, have greater long-term prospects than cash or bonds. There is a natural tendency to look close to home and invest in the UK stock market, but the world is your oyster, so parents might consider a global equity fund such as the accumulation shares of the Artemis Global Income fund or the Old Mutual Global Equity fund.”
“For those with shorter time horizons, perhaps hoarding some funds which will be needed within five years, a wholly equity focused approach carries too much risk and uncertainty, so more cautious strategies might be considered. Here targeted absolute return funds such as Invesco Perpetual Global Targeted Returns or Standard Life Global Absolute Return Strategies offer less volatile approaches but with more modest return prospects than an equity fund.”
“While Junior ISAs are a handy way to start saving for your child, they are by no means the only way of doing so. For late starters, the capped Junior ISA allowance means they will need to look at additional options as well but for some parents there will also be unease at the idea of giving their children free-reign over a pool of assets as soon as they have turned 18, and those looking to exercise more control may find using their own ISA allowance more suitable. The allowance is a much greater £15,240 for the 2015/16 tax year, and cash can be withdrawn and used whenever required, with the parent in the driving seat.”
Tilney Bestinvest offers a Junior ISA through its Online Investment Service which provides access to a choice of more than 3,500 funds, as well as investment trusts, ETFs and stocks and shares with a minimum investment of £100 lump sum or £50 per month. For more information visit bestinvest.co.uk/juniorisa
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About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.
For further information, please visit: www.tilneybestinvest.co.uk
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.