Financing further education

It’s that time of year again, as universities around the country open their doors (albeit virtually this year) to a cohort of new undergraduate students, eager to embark on the next chapter of their lives. Although beginning a university degree is an exciting prospect, the cost of higher education can be daunting for students and their families, causing uncertainty for many. And this uncertainty has only been heightened this year due to the ongoing COVID-19 pandemic.

So how much does it really cost to finance further education? We’ve broken it down across some key stats…

92% of graduates interviewed took out a loan to finance their time at university but only 18% expect to repay this in full. Students who anticipate they will be able to repay their loan think it was take an average of 14 years to pay it off. 

And what’s the cost of the debt?

  • Students planning to go to university anticipate graduating with a debt of £38,238
  • Final year students anticipate their debt will amount to £39,430
  • The average parent underestimates their child’s likely debt on graduation at just £23,905

Those are quite considerable figures! Is the ‘bank of mum and dad’ a viable option?

66% of parents are planning to help their children with university costs, but there is a big difference between parents from different social grades:

  • 70% of parents from social grades ABC1 plan to contribute
  •  53% of parents from social grades C2DE plan to contribute 

And how exactly do parents save for their children’s university costs?

Overall, parents aren’t very likely to invest in the stock market to fund their child’s further education:

  • 62% have used cash accounts
  • 16% have used investment companies
  • 12% have invested in shares

Of course, investing in the stock market comes with risks – the value of investments and any income from them can go down as well as up, so you need to be comfortable that you may not get back the original amount you invested.

However, those with younger children – importantly with time on their side – could consider the long-term growth potential that comes with stock market investing. At BMO, we believe the earlier you start investing for your child’s future, the greater the chance you child could achieve those future goals, such as going to university. Let’s look at some figures over the past 18 years[1]:

  • Investing £25 a month in the average investment company would have grown to £15,003.
  • Investing £50 a month in the average investment company would have grown to £30,006.
  • Investing £100 a month in the average investment company would have grown to £60,011.
  • Investing a lump sum of £5000 would have grown to £31,589.

Past performance is not a guide to future performance. The value of all stock market investments can go down as well as up and you may not get back the full amount originally invested. 

We offer two Investment Plans that could help your child later in life. The BMO Junior ISA (JISA) allows you to invest u to £9,000 per tax year (2020/21 allowance) without paying tax on income or capital gains. Alternatively, our Junior Investment Account (JIA) has no investment limit but doesn’t offer the same tax-efficient benefits as the Junior ISA. Both plans allow you to tap into the long-term potential of the stock market. Find out more here.

The impact of Covid-19

The pandemic is causing increased uncertainty around university – and not just down to the A-level results mess. 18% of young people aged 16-24 who are not at university and not planning to go cited the virus as a factor influencing their decision [2]. And the most common reason here was concerns over fees due to the financial impact of the pandemic. Meanwhile, 39% of parents stated the pandemic has made it more difficult for them to support their children through university. 

Turning to current university students, 82% stated that COVID-19 has made their time at university worse value for money, with the top three reasons for this being:

  • Reduced teaching content hours – 68%
  • feeling less productive working from home – 49%
  • Limited experience of the social aspects of university – 41%

So higher education is certainly expensive. But if parents are considering contributing to the costs and have enough time on their side, taking a look at their investment options could provide opportunities to grow that contribution over the long term. View our investment plans to learn more about how our investment plans could help with your child’s future problems, as well as our over 200 years of investment expertise.

Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time

Investing with BMO

BMO offers a range of plans designed to meet different investment goals and help you make your money work harder.

As with all investments, you need to be comfortable that you may not get back the original amount invested.

Opening a BMO plan is easy. 

Choose the perfect plan.

Our commitment to sustainable investing

At BMO we invest with a purpose – to boldly grow the good.

It is an ethos we are proud of and one that is engrained in our heritage, from the launch of Europe’s first ethically screened fund in 1984.

Today, all our active investment teams integrate ESG considerations into their decision making and we continue to develop dedicated and high-quality responsible funds and solutions. 

[1] Source: AIC/Morningstar. Performance is % share price total return to 31 July 2020.

Investment company performance is the % share price total return of the overall weighted average investment company to 31 July 2020 ex VCTs and 3i.

[2] 46 out of 260 respondents (18%) said that coronavirus is one of the reasons they do not plan to go to university. Among those 46 respondents, the most common reason, cited by 16 respondents, was that they were worried about the financial impact of coronavirus.

All data according to research from the Association of Investment Companies (AIC) conducted by Opinium. The research was completed by Opinium Research on behalf of the AIC from 7 July to 17 July 2020. The parents research from 7 July to 15 July consisted of 1,001 online interviews with parents whose children have gone / expect to go to university. The student research from 7 July to 16 July 2020 consisted of 1,000 students who are planning to attend university or are currently at university. The graduate research from 7 to 14 July consisted of 205 graduates who have completed their degree in the last 5 years. The research among those who are not at university and do not plan to go from 7 to 17 July consisted of 260 young people.