DS has inheritance & could cover uni fees. Why should he still get a loan?

Bubbles. You are correct in most of what you say, but just a few comments.

Firstly, if you are keen on reducing inheritance tax, then paying fees is a good way. If you decide in a few years time to pay off your DCs loan in a lump sum, then it will be liable for inheritance tax.

Secondly, I suggest everyone looks at the student loans calculator online. If you start on a salary of 55k, which is a typical graduate starting salary in London, then you repay the approx 60k maximum loan in 26 years but you end up paying 153 k back. This assumes a 2% salary increase. In reality they should get larger increases in the first few years, all going well. I think this is a huge amount of interest on top of the loan.

Thirdly, mortgage companies now look at affordability when giving out loans. The 55k pa graduate will be paying off £195 per month on the student loan. This is quite a lot on top of other expenses and will reduce the mortgage they can have.

I do think you have to keep an eye on property prices if he wishes to live in London. Obviously that’s crystal ball gazing too, but it’s where the bigger salaries are. With our £1/4m, we could have paid DDs undergrad fees etc. We did pay post grad course fees and pay for her keep for two years after university but she took out the loan (at the lower level) for undergrad. If you have enough money for a deposit for a property in London, and he will earn enough for a mortgage to buy there, you probably should do it now. We are giving to reduce our estate for inheritance tax purposes. It’s big money though and we don’t really think the money we are giving would be better spent paying off the loan. We need it for the property. London prices are exhibitant and she must live there. If your DS is less bothered about where he lives and he earns well, all will be ok, but a £50,000 salary gets you not very far in London so you need to do the sums re a deposit.

He could pay it back after his degree but interest starts accruing on the loan from the day it is taken out. So while he is still a student, the loan is increasing by 6.6%. So he will owe a lot more than he has borrowed by the time he graduates. To me, this is the most disgraceful part of the whole student loans system.

If you think he is ambitious and will earn a good income over his working life ( which is surely what most of us want for our DCs), then you should avoid taking a loan, IMO.

It would be a shame to lose his 5k income to release money for his own home. Better to keep the buy to let and buy another? Surely it would make more sense to take the money to give him options at the end of his course. He can always pay it back then if he doesn't need it.

I agree with Cunt - read the student loans section on MSE - it made us decide taking maximum student loan was the best option for my DC.

If he owns 1/3 of a house, the other beneficiaries will have to buy him out to release that money or they will all have to agree to sell to realise that money. Therefore it may not be as easy as you think to get the capital out. There is also capital gains tax to consider too.

If he is thinking of London, DD is just buying a flat there at a stonking amount of money. She earns well. We have still had to sub by at least £250,000. I would do your sums very carefully before using up his money on fees.

However on the downside, I am hearing horror stories from friends with older children saying that dealing with the Student Loan Company can be a bit of a nightmare and that lots of mistakes are made with the PAYE calculations and if you work abroad. Part of me thinks it might be best to avoid that!

Please don't make a significant financial decision which will affect 30 years of his adult life just on his ability to deal with a bit of crap admin.

I would love to know how he is managing to get 6% on his savings. Most people are lucky to get around 1%.

It is quite a difficult decision, I agree. However people who say take out the loan as it is only a graduate tax and most people will never pay it back are forgetting that they will still be paying 9% over 25k for 30years. That will amount to a huge amount of money paid back, even for lower earners.

Certainly my DD has gone into a high paid graduate job, so our decision to pay her fees was correct. She would otherwise be sitting on a loan accruing 6.6% interest, which is massive.

Mortgage lenders will also take the monthly repayments into account on their affordability test, so this is an additional issue.

Forgot to say we will be in the same boat with our kids although it's 10 years away but I would definitely be advising them to take loans under the current system. Their grandfather who gifted the money would agree.

I'd get the loans to enable him to buy a house earlier. No brainer to me.

If he becomes unwell or disabled, decides to be a SAHP or work part time, takes an altruistic lower paid role or wants to start his own business or retire early the money will be much more useful to him than not having a loan. If things do go as planned and he gets the highly paid job and it becomes clear that he is going to pay off the full balance he can always pay his loan off early but I wouldn't recommend not taking one.

If he takes the loans and holds onto his inheritance, he'll have a house deposit all ready to go as soon as he's ready to settle down. If he were to save the £ he would have paid back towards his loan, he might be waiting much longer to buy his first house

^THIS x1000

If he pays for uni up front, he could end up never being able to save enough for a deposit. Even if he gets a well paid job straight after graduation, he’ll likely see most of his salary going in rent, especially if he’s London based. Taking the loans and using the money as a deposit is a much better option. Also, he could change his mind about his future career, it’s definitely not a given that he’ll be a high earner.

The 6% income on any remaining inheritance will be taken into account when calculating loan repayments so you may find even on a lowish salary that he is paying quite high repayments, it totally depends on how much money we're talking about.

We are in a similar (very fortunate) position and my DS is using some of his inheritance to pay fees and rent (we are covering living costs plus he's using savings from a PT job). He doesn't want the debt hanging over him or the hassle with having to inform SLC if he goes abroad for long periods of time so that's what he's decided to do.

I think it's a good use of the money in his position, but I recognise it's an unusual position to be in that most people won't identify with so hard for others to advise.

KeneftYakimoski
I think any who says up front, before their child starts university, that they are sure to graduate into a high-paying job is guilty of not only counting the hens in advance of the eggs being laid, but of building a gold-plated, diamond-encrusted counting machine to do it.
I agree with every word.
We have also made the same decisions as you. Take the loan, for now at least. Review once degree completed and career path looks clearer. At that point we will either pay off the loan or pay house deposit.
Already one of my DC has changed direction. After winning a place at Oxbridge and graduating with a first in Maths she went into teaching.So low pay and unlikely ever to repay student loan.

DC2 seems likely to do post graduate study which we will fund asPG loans are a) only £10k and b) re-payable concurrently with UG loans.

It's not a loan, it's a graduate tax.

Repayments are made by PAYE.

That is all.

It also depends on how much extra money is available to him from you or other sources. For example if you can fund a postgraduate degree (£20,000+ fees per year) that may be required for high earning careers as well as deposit for a house or business start-up then liquidity is less of an issue.
For most of the younger generation, available capital could be key to facilitating things post graduation.

Put the money into premium bonds while he thinks about his decision

Ultimately I think he should use it as deposit for a home

Is the inheritance enought to buy a property outright in his chosen Uni town with enough rooms to rent out 2? If so, it might be worth looking at buying the property, income from the rented 2 rooms for 3 years would be a better return on his investment, then sell once he's graduated and got a job probably elsewhere, meanwhile getting a loan only for the fees.

What a schoolboy thinks he is going to do 'after university', and what you think he is likely to earn, is absolutely not a certainty that they will.

I know the range of jobs, and incomes, flowing off the end of a top-rated STEM degree at a top-rated university. I know the troubles that students have, the delays in graduating, the sharp changes in career aspiration, the decisions to become school teachers and vicars and folk singers, to go abroad and teach in English, the changes of programme...

I think any who says up front, before their child starts university, that they are sure to graduate into a high-paying job is guilty of not only counting the hens in advance of the eggs being laid, but of building a gold-plated, diamond-encrusted counting machine to do it.

I agree with Titchy and others.
What a schoolboy thinks he is going to do 'after university', and what you think he is likely to earn, is absolutely not a certainty that they will.
101 things can happen.

If buying a house where he is going to study / letting out rooms to friends is a realistic possibility, that sounds like a strong plan, but if not, I'd at least wait until the end of the degree, and until he has definitely got this wonderful, high paying job, before looking at the possibility of using up a huge sum of money like that.

I did further maths A level in a class where we were seen as incredibly high fliers the likes of which school had not seen before. 8 of us. 6 As, 2 Bs.

If you were going to bet on 8 people to do well then we would have been the ones to do it on.

All 8 of us went off to our Russell Group STEM degrees.

Only 6 completed their degrees. 1 failed second year. One dropped out due to mental health issues.

1 of the ones to complete also found God at university and is now a vicar.

The other 5 are working in STEM based careers although at least one (me!) only works part time.

People change and life happens.

Some people see it as the done thing. Many students (though not all) take out these loans and start buying top end computers, cars and generally wasting the money rather than just taking what they need for fees and getting a part time job for the rest.