Higher Education Costs - How can you help?
Higher Education Costs - How can you help?
Research published by the Association of Investment Companies (AIC) revealed that the average student now anticipates leaving University with total debt in excess of £38,000.
Fortunately, evidence suggests that graduates can look forward to higher average salaries and long-term earnings potential than those who didn’t go to University. For example, the Higher Education Statistics Agency and University of Warwick found that amongst people born in 1990, graduates with a First-class degree or a 2:1 were earning more 14% more than non-graduates by the time they turned 26.
However, the potential of starting working life with high levels of debt can lead many to question the wisdom of further education. One of the best ways for families to help their children mitigate the costs of University is make regular savings for them.
For example, in the scenario below we would like to identify what investment return is required to meet 50% of the costs of University (based on £38,000 as above) with the following assumptions –
- There are 18 years until University and the length of study is 3 years.
- Annual costs are £12,667 and will increase by inflation at 1.50%.
- The Annual Savings we can make are £900 or £75 per month.
- The Annual Interest we will earn on the capital accumulated whilst at University is 1.50%.
Using the calculator in the image to the right, the annual rate of return required to meet the higher education costs is 4.79%, significantly higher than cash deposits and demonstrating that to meet the objective, an early start to a long term saving plan is crucial.
