Student and Graduate Finance - UK

INTRODUCTION AND ABBREVIATIONS

Students and graduates - a more fragmented consumer base

Key sources

Global information and research

Consumer research

ACORN

ABBREVIATIONS

Definitions

EXECUTIVE SUMMARY

Government targets 50% participation rate in Higher Education

Recent educational changes create a ‘buy now, pay later’ culture

Tuition fee increases may lead to reduced HE applications

Undergraduate finance starts before university - half are already saving

In 2002/03 the average shortfall between income and expenditure was £1,384

Student Loans have increased their share over commercial debt

Lifetime earnings differential between graduates/non-graduates still exists

Segmenting the market for profitability

Have HE student numbers peaked?

First-degree graduates comprised approximately half of the Higher Education sector graduating in 2005

Figure 1: Qualifications obtained by students on HE courses at HEIs in the UK, 2000/01-2004/05

Students owed an average of £5,267 in 2005

Over 2000-05 anticipated debt increased by 60% for those in year three

NatWest and HSBC dominate advertising spending on student and graduate financial services

Consumer research shows HE attendance and consumers’ plans to enter/re-enter

Graduate earning differential still exists

Drilling down to understand the current and potential student population

Undergraduate and graduate bank account ownership trends

Student accounts engender loyalty…just

Those loyal to student account providers are the most open to debt

Cluster group analysis shows debt profile is key to attitudes towards student accounts

The future - a more fragmented student body

MARKET DRIVERS

Government targets 50% participation rate in Higher Education

Figure 2: Age participation rates in Higher Education in Great Britain, 1985/86-2003/04

Latest HEIPR stands at 43% against a target rate of 50%

Demographic changes may lead to a lower number of potential students

Figure 3: Population growth, by age group, 2001-25

Pool of talent will decrease going forward

Figure 4: Population change in the UK younger populations, 2000-10

Financing greater student numbers through increasing private expenditure

Figure 5: Public/private expenditure on tertiary education as a percentage of GDP, by sources of public and private sources, 2002

Recent educational changes create a ‘buy now, pay later’ culture

Buy now, pay later…for longer

Greater support for poorer students?

University fees undergo a step change increase in 2005/06

Implications - tuition fees increase, applications are down slightly

Pressures on student finances

Undergraduate finance starts before university - half are already saving

Figure 6: Financial preparations for university, 2004

Undergraduate income showing systemic changes

Figure 7: Systemic changes in student finance: a decade of change in student income, 1988-99

Undergraduates’ income has increased with their borrowing capacity

Figure 8: Changes in the composition of students’ income, 1998/99 and 2002/03

Families lend less and students do more paid work

Figure 9: Key sources of students’ income, 1998/99 and 2002/03

Income derived from the student’s family has reduced

Paid working hours have increased, especially for C2DEs

STUDENT EXPENDITURE

In 2002/03 the average shortfall between income and expenditure was £1,384

Figure 10: Student expenditure in 2002/03 Academic year

Entertainment is the single greatest expenditure of students’ living costs

Financing student debt

Figure 11: Changes in student borrowing and sources of debt, 1998/99 and 2002/03

Student loan has increased its share over commercial debt

Current terms and conditions for Student Loans

Figure 12: Maximum loans available to full-time Higher Education students for 2004/05

Figure 13: Repayment thresholds for Student Loans, 2005 and 2006

Commercial credit approaches £1 billion - what’s in it for the providers?

Lifetime earnings differential of graduates is not as clear as in the past

Figure 14: Weekly earnings of graduates and non-gradautes in the UK, by age group, 2004

Graduate prospects look good in the short term

Figure 15: Main influences on the annual rate of growth of real earnings of graduates, 1995/96-2002/03

Graduates of certain institutions earn more

Figure 16: Average starting salaries of graduates, by Higher Education insistution, 2005

Postgraduate study is a differentiator?

Figure 17: Types of work undertaken by UK-domiciled Masters degree students graduating in 2003 and working in the UK

Figure 18: Composition of the Russell Group, 2006

MARKET SIZE

Growth in HE student numbers has outpaced FE growth

Figure 19: Total number of students in Further and Higher Education, 1970/71-2001/02 and 1996/97- 2004/05

Have HE student numbers peaked?

Higher Education comprises more than just first degrees

Figure 20: Qualifications obtained by students on HE courses at HEIs in the UK, 2000/01-2004/05

First-degree graduates comprised half of the Higher Education graduating sector in 2005

Number of first-degree graduates increased by only 5% between 2003/04 and 2004/05

Figure 21: Growth in qualifications obtained by students on HE courses at HEIs in the UK, 2000/01-2004/05

Sub-degree-level courses are driving undergraduate growth

Postgraduates represent an increasing proportion of the student body

Study modes - part-time study is key to education growth

First-degree students are least likely to study part-time

Figure 22: Full-time and part-time students in UK Higher Education in 2004/05

Time to appraise the traditional undergraduate/graduate offer?

Students owed an average of £5,267 in 2005

Figure 23: Average value of student debt, 2000-05

Key sources of credit for students

Figure 24: Average value of student debt by those owning financial product, 2002-05

Growth in value and product penetration

Figure 25: Average value of student debt by those owning the product, 2002-05

Average value of overdrafts is increasing slightly but take-up is down

Students with credit cards are borrowing more

Personal loans are consolidating loans?

Parental loans are down

Student Loans are taken up by approximately 80% of those eligible for one

Over a million students are not eligible for student loans

Student Loans may by peaking in terms of product penetration

Figure 26: Take-up of Student Loans - value and number of student loans, 1990/91-2004/05

Over 2000-05 anticipated debt increased by 60% for those in year three

Figure 27: Students’ anticipated overall debt at the end of course, by year of study and calender year, 2000-05

PRODUCT DESIGN AND KEY PLAYERS

Big five banks dominate the student market

Figure 28: Estimated market share of the student banking sector, 2005

Student accounts

Figure 29: Selection of student current account packages, 2005/06

Overdrafts are consumer-friendly - unless unauthorised

Incentives are still offered

Credit cards are offered but with low limits

Moving students into the real world

Figure 30: Selection of graduate account packages, 2005/06

Career development and graduate loans offer a way of segmenting the high performers

Figure 31: Selection of career development loans, 2005/06

CDLs and graduate loans show segmentation and partnerships as the way forward

Figure 32: Selection of graduate loan packages, 2005/06

ADVERTISING AND PROMOTION

TV advertising is central

Figure 33: Adspend on graduate and student general banking services, by outlet type, 2005

NatWest and HSBC have consistently spent most

Figure 34: Adspend on graduate and student general banking services, by advertisers, 2002-05

HSBC and NatWest are main spenders

Figure 35: Adspend on graduate and student general banking services, by advertiser and outlet type, 2005

THE CONSUMER AND PRODUCT OWNERSHIP

Higher Education attendance (educational attainment)

Current students make up 6% of the sample, but 16% are HE prospectives

Figure 36: HE attendance and plans to enter/re-enter Higher Education, February 2006

The under-35s are engaged with the concept of Higher Education

Figure 37: HE attendance and plans to enter/re-enter Higher Education, by gender, age and socioeconomic group, February 2006

Implications

ABC1 16-34s are a key group

Figure 38: HE attendance and plans to enter/re-enter Higher Education, by marital status, lifestage, age/socio-economic group and tenure, February 2006

HE graduates are more economically active

Figure 39: HE attendance and plans to enter/re-enter Higher Education, by working status, annual income,

TV region and ACORN category, February 2006

Non-graduates earn less, older graduates earn most

Implications

Drilling down to find current students and prospective students

Figure 40: Current and prospective students, by gender, age and socio-economic group, February 2006

The current student sample is firmly ABC1

Figure 41: Those currently studying for HE qualifications by age/socio-economic group, February 2006

Almost a third of students work full-time

Figure 42: Current and prospective students, by lifestage, working status, TV region and ACORN category, February 2006

Current students are most Internet-savvy and love their mobiles

Figure 43: Current and prospective students, by new technology users, newsparer readership, commercial

TV viewing and supermarket usage, February 2006

Implications

Undergraduate and graduate bank account trends

Figure 44: Student bank account ownership, February 2006

Implications

Modern day students are more likely to have bank accounts prior to entering Higher Education

Figure 45: Student bank account ownership, by gender, age and socio-economic group, February 2006

Implications

Broadsheet readers are most likely to switch

Figure 46: Student bank account ownership, by new technology users, newspaper readership, commercial

TV viewing and supermarket usage, February 2006

THE FUTURE

Growth of the Higher Education sector may be slowing

Fragmented student body

Some students and graduates are more equal than others

Behaviour is changing - will products/services change too?

FORECAST

Figure 47: Forecast of qualifications obtained by students on HE courses in the UK, 2005/06-2010/11

Growth in the number of Student Loans will continue, but the size of the loan will be key going forward

Figure 48: Forecast of the value of SLC loans at current and constant prices and number of SLC loans, 2005/06-2010/11

Factors used in the forecast

APPENDIX: RESEARCH METHODOLOGY