UK wealth manager Hargreaves Lansdown has spoken about the fall in university applications and how much does it affect clients if they go to university.

After UK universities admission service, UCAS, recently revealed that applications to university has fallen 3.4 per cent this year, might a drop eventually affect the type and volume of future high net worth individuals?

University applications have been declining in the UK since the Conversative and Liberal Democrat coalition government introduced £9,000-a-year ($11,664) degrees in 2012. The exodus is being led by young men, whose applications to university are at their lowest for three years, data showed. Young people are starting to question whether it will financially benefit them if they go to university.

People heading to university face a large bill, which may affect their wealth management needs further down the line.

Personal finance analyst at UK wealth manager Hargreaves Lansdown, Sarah Coles, recently discussed the issues for young adults about the debt they end up taking on after university.

“A-Level results day sees hundreds of thousands of teenagers put through the mill of extreme anxiety, followed by exhilaration or devastation,” said Coles. “It’s no picnic for their parents either: they face either the emotional fallout from disappointing grades, or the enormous challenge of how they’re going to fund three of the most expensive years of their offspring’s life. Many will find it difficult to deal with the idea of their child starting adult life with over £60,000 of debt. However, before they rush to try to cover the costs themselves, they need to bear in mind that for the vast majority of students, a huge chunk of this money will never be repaid. For a typical graduate, therefore, parents who want to help financially may be better off helping their student offspring close the gap between the maintenance loan and the cost of living.”

Coles added: “If the graduate is one of the 17 per cent who will pay back all of their loan, the excessive cost of interest means it’s worth repaying as early as possible. The problem is that high flyers aren’t always easy to spot. If you assume average pay rises, a graduate would need a starting salary of almost £56,000 in order to repay this debt before it’s written off. Unfortunately, this kind of graduate salary is incredibly rare: what’s more likely is for a high flyer to start on a less outlandish income and see their salary ramp up in their 30s. By the time they realise they’re one of the 17 per cent, they may have already spent tens of thousands of pounds in interest.”

The cost
Students starting a three-year university course this September could have £61,840 of student debt by the time they graduate. That’s not to mention additional debts they may run up when their living costs exceed their maintenance loan.

However, the Institute for Fiscal Studies calculates that 83 per cent of graduates will never repay their student loans in full.

 

Source: Hargreaves Lansdown

How can wealth sector help?
Editorial comment: There are a number of ways that the wealth management sector could lend a hand for this issue.

Firstly, in terms of high net worth families, wealth management firms should contact clients to set up a financial plan to help students before they reach university. They may not be high net worth now, but when or such persons become high net worth individuals, this will build trust with firms. The wealth manager will also know a person's financial situation when that individual becomes a client.

Secondly, in terms of people not going to university – more wealth management firms can introduce trainee schemes to get more into the working world at the age of 18, as well as solving the wealth manager and financial planner talent crunch.  Firms like St James’s Place and Old Mutual Wealth already have training schools but advertising to 18 year olds might help them solve their financial issues.

Lastly, wealth management firms can improve their reputation by supporting scholarships for students who want to carry out a business degree but cannot afford it. A lot of firms like Barclays already have philanthropy schemes for education – and they can help with community spirit as well as potentially employing future wealth managers and private bankers.