Great podcast about student loans.

[NigellaWannabe1]

https://podcasts.apple.com/gb/podcast/the-news-agents/id1640878689?i=1000748553491.

Hopefully you can click on it if you’re interested. It’s really made me angry about student loans.

one thing I don’t understand is, why does Martin Lewis keep saying that even if you can afford to pay your child’s student loans, you shouldn’t? That it’s better so save the money towards a house deposit… but how can that be true if you’re likely to pay for your loans for the duration of your working life?

Of course, you can never know if your child is going to be a high earner but according to this podcast, the lower earners will pay the most over the duration of their loan’s term. Now you only have to earn a little above minimum wage to have to start repaying.

Thanks!

Any thoughts?

I’ll listen to the podcast now, thanks for sharing. My kids are 14 & 13 so I have a bit of time to organise myself but not loads.

I understand he’s saying this because whilst the 9% tax is a PITA, it’s not quite the same as having to save many tens of thousands for a house deposit.

However, I think our plan is to probably, just about, be able to pay for tutition fees & ideally some of the maintenance aspect and cross a house buying bridge in a few years. On the one hand ours could stay at home ans study locally. I know they’d miss out on uni life. But uni life comes at such a cost…. I don’t think it’s personally worth it?!

It’s not true that lower earners will pay the most. In £ terms, they pay the least. As a share of one’s lifetime income, it’s middle earners who will pay the most. See https://ifs.org.uk/articles/how-do-plan-2-student-loans-work-and-how-have-they-changed-over-time

I think part of my problem with his reasoning is that most don’t have a £50k lump sum to stick in a savings account for future use, but more likely can pay part of the fees as and when. It takes a very disciplined person to have a chunk of cash and just decide not to spend it on this that or the other (roof need fixing etc, I’m not talking about a big cruise). Plus the debt will be paid off in most cases with most of it being in interest payments. I’m not convinced.

With the new Plan 5 student finance, the interest rate on the debt is 'only' RPI, rather than RPI + 3% so Martin Lewis' view is that the debt is only rising at the same rate as anything else.

But what 17 or 18-year-old wants to start their working life with a big debt that just keeps rising because their monthly payments aren't making a dent in it?

I would pay the costs and avoid the loan rather than give a house deposit for motivational reasons. I don't want my kids grafting to pay down for the past, I want them striving for their future - the way all past generations could - live and dream a little! I think the motivation of saving encourages healthy frugality whilst debt is begrudging burdensome financial imprisonment. Well that is how it make me feel 😂😂

Thanks everyone. I just don’t understand how paying for a loan for 40 years, in such a way that for most you don’t clear it until it expires, can be cheaper than just paying off the fees upfront.

@NigellaWannabe1 I’m afraid you don’t seem to entirely understand how the loans work. What you pay depends on what you earn. As a result some will pay it off but they still think 25% won’t over 40 years. These are people in lower paid jobs. They will pay for longer and the interest racks up. It seems they might be better off paying up front. However you have £9,500 a year for tuition and a minimum of £5,000 for maintenance. Some will have £10,500 for maintenance each year and in London, more. This means poorer families whose dc can get the full loans will have to find £20,000 pa. Do you think they have £60,000 lying around?

If you do have £60,000 available, you have to look at what else dc could get for the money. A house deposit almost certainly. Then you have to consider repayments of the loan. Even if you borrow only £30,000, your repayments are the same as £60,000 because it’s based on earnings. Not size of loan. Sk you can put money in for no monthly gain as the repayments are identical irrespective of what you borrow. This does not seem to be understood.

Quite clearly, if you have substantial savings for dc and they will get a house deposit and university paid for, crack on. The majority don’t have this for several dc, so the loan is inevitable.

Higher earning dc pay it off quicker, so make sure the degree leads to good money. Or don’t go at all.

The “debt” is not a debt in the conventional sense as you are not required to pay it off and many grads starting out pay little each month. MSE has the payments tables. However with 37% of school leavers going to university, it’s inevitable they pay and it’s not on general taxation. However the student debt is fast reaching £250 billion and this money has gone to the universities. There is no way grads will get free tuition again if we want a HE sector of this size. If we close half our universities, it might be possible. Does anyone want that? Only AAA students go?

ML is not wrong but if you have lots of money - pay up front. If you don’t, then it has to be the loan. Most grads don’t notice how much they pay. Grads do still earn more so “debt” at this minor level isn’t a burden. Some people need to read up on repayment figures and how the loans work. If you have only £60,000 for dc think very hard about uni fees or house. If might take dc 20 years to save that much again.

Plan 5 loans are at a low interest rate. Crucially all student loans don't behave like other debts- if your income falls the repayments fall or stop. So unless you are wealthy enough to not need a student loan or any other debt including a mortgage it makes no sense to use savings to pay for tuition/ maintenance. Keep the sayings and use them to avoid/reduce more expansive future debt - particularly a future mortgage. Most people pay a mortgage for 25 years + at above inflation interest rates, and if you die the mortgage still has to be repaid- unlike the student loan. I've a lot more than 9% of my income on my mortgage!

@NigellaWannabe1 My Loan is from early 2000s so not as big but I still haven’t paid mine off. As a part time teacher who has had career breaks for kids, I don’t earn enough. It doesn’t bother me at all. When I got a small lump sum from an inheritance it made far more sense to use it for a house deposit (which I wouldn’t have had otherwise) rather than pay off the loan.

DD is in 3rd year of 4yr degree. Is there any benefit to me paying the interest each year so the debt remains the same and compound interest doesn't accrue on it?

i.e. the debt doesn't increase?

Do mortgage offers account for repayment costs?

But most people can't 'just pay off the fees upfront' or at least will have better uses of tens of thousands of pounds in the decade from age 18 onwards.

The amount of people who can pay fees and living costs and afford other 'starting out in life' costs such as learning to drive and buying a car, and a house deposit is a tiny fraction of the population.

Plus you have the uncertainty as to whether the loan will be paid off, meaning if you've paid the fees upfront, you've paid the money for nothing.

Although on Plan 5, it's expected that a lot more people will pay the loan off in full, meaning that if you have the money to pay fees, won't need the money for a house deposit and are reasonably certain that your DC will repay at least the amount borrowed, then it's probably worth considering and this is certainly what Martin Lewis is saying now, which is different to previously, when it was a lot less clear cut, and also before the high inflation period - pre covid there was a long period of close to zero inflation, which is a lot different to the couple of years (2021-3?) when it was more like 10% for a couple of years in a row.

However, for the majority, they won't be any worse off if they can defer payment of their fees until they're in their 30/40/50s when they're earning more due to inflation and career progression and they've hopefully already bought a house because the 'interest' is only really due to inflation, not actual interest as such and they also have protection if they don't earn, they don't repay.

I believe so. They're taken into account when accessing affordability.

Makes no sense at all. Put the money in a high interest savings account instead.

If after graduation they end up as a high earner it MIGHT make sense for them to overpay the loan to clear it more quickly - but only if the student loan interest is higher than any other debts including a mortgage. Makes more sense to have a higher mortgage deposit than to overpay a student loan as currently you are unlikely to get a mortgage rate that is lower than the student loan rate.

Which could be an issue I suppose.

As I understand it, yes.

I don't have a huge income or big savings, and I will need those when I retire, but I am wondering if I can at least pay some off at the end of each year. (DC due to start university autumn 2026)

I believe that in a worst case scenario like a life changing accident or health issue, or even death, that means they will never have to pay the loan. So parents paying it off early carries that risk.

Ok, thanks for all who replied 🙂.

@JudithS The repayments ARE based on SALARY!!! Not what anyone owes!! Good grief!

Yes, I know. Where did I say otherwise? And who wants to be paying a chunk of their salary for FORTY YEARS?! If that had been around in my day, I would still be paying! And I'm old enough to get OAP discounts in some places!

This isn't me: this is my teenager, not even legally adult yet. How is DC meant to consent to such terms?

No it won’t be. Their repayments will be the same regardless. Unless they’re one of the higher earners who could expect to pay in full, in which case your contribution might mean they pay it off age 60 rather than age 61…

You’re a bit late to the party I’m afraid. Interest pegged at inflation now for plan 5 loans.