In this scenario, does it make sense to pay uni fees upfront?

[enseehammer]

DC1 is heading to uni later this year, and DC2 will go in 2 years. I know the prevailing wisdom is that it's unwise to pay uni fees upfront - I've read the Martin Lewis advice on this. However, my mum died recently and I'm about to inherit a lump sum from the sale of her house. There is enough to pay off our own mortgage (when my current low fixed rate ends), and also cover uni fees for both DC's, rather than them taking out student finance and paying the above-inflation interest rate (at a time of rising inflation).

The alternative is to invest the money, either in a rental property or the stock market, in the hope that it grows. But rental yields are being squeezed, and the stock market could be a dangerous bet in these uncertain times - so I'm not sure that either option can be relied on to make a good enough return. (Yes, I know the stock market is generally a good bet in the long term, but if ww3 is about to begin, all bets are off!).

Another argument against paying upfront is that DCs may not have to pay back the full amount if they have a low income, but we live in London where wages are a lot higher than average, and the DC's are both wanting to go into high earning jobs after graduating, so I think its most likely they will both pay back the full amount and a lot more besides.

Aibu to think paying the fees upfront might be a good bet in this scenario?

I wouldn’t. And my financial advisor wouldn’t.

But my millionaire friend did.

Invest in a property - it will then match property growth for their deposit

@JayAlfredPrufrock

I wouldn’t. And my financial advisor wouldn’t.

But my millionaire friend did.

I have spoken to a financial advisor. She gave the prevailing view that most other financial advisors will give - that the stock market normally goes up over time. But these aren't normal times.

I would pay it up front. Then your DC can start their working life debt free.

The government change the rules all the time for student loans and the terms in general keep getting worse.

I’m not sure if it was confirmed or just a proposal but they recently announced changing the repayment period from 30 to 40 years for new students. And they’ve frozen the threshold for repayments to start.
I read that under the new plans, it’s estimated that just over half of students would end up repaying in full (as opposed to less than a quarter now). I wonder if that changes the advice on this - if over half will pay back everything plus all the interest, maybe that does make it better to pay upfront.

@Movingonup22

Invest in a property - it will then match property growth for their deposit

I would lean more towards this option too. Invested money (whether in a property or stock market) will help your DC with a future house deposit, even in London. And if the DC take out student loans (instead of paying their uni fees upfront), they won’t pay much for the first few years and the deductions from their salary will be basically like a small tax. I think investing the money would be a safer and wiser long-term option.

When does the interest start from? From when the loan is taken out or from the April after they graduate?

If it’s after they graduate then I would let them take the loans, invest the money in a medium risk stocks and share isa fund and then pay the loans off at the end if the interest charged was more than the money I was making from the ISA.

Or, pay half the fees and invest the other half. Personally wouldn’t invest in property as the responsibility is too high for me versus the reward.

If we could have afforded to pay for our kids uni fees instead of them getting the loans we would have done. We are currently fighting student finance who say my ed owes them money when in fact she doesn't. This is three years after the fact. For them to be able to earn a higher wage without worrying about triggering the repayments would be wonderful.

If they are likely to be high earners in a London market then yes I would pay up front.

I invested when I inherited. Had good growth and I’ve used the profit. Currently going down but 🤷‍♀️

Dd will inherit our house so will have a cushion.

The student loan is cheap finance.

I would invest in a property in uni town. I know a few people whose parents did this. Their dc lived rent free and they had mates rent the other rooms. When they were older, they sold the property at a profit.

No, it doesn’t make sense. The interest is high but the re payments easy and with the remaining loan being forgotten after 30 years it would only make sense to pay if your child is on a 6 figure salary soon after graduation.

It is difficult to imagine it but there is a calculator in the Money Saving Expert site that may help you to see how much of the loan it is likely to be repaid.

The student loan is disregarded when applying for mortgages of other loans (but affordability will still be considered), it doesn’t affect credit ratings either.

That money would be better spent on a house deposit. If you are worried about money loosing its value consider opening a LISA account rather than paying the student loan.

You need to research buying a property and renting it out very carefully, you will be subject (quite rightly) to all sorts of HMO regulations. Do your homework.

No I don't think so. Use it as a deposit on a property for them to live in and then they use their student money to pay rent, or one of them does either alone or with friends, and you sell once they're all done and divvy it up, I dunno, the details you can work out but as a graduate a property or a lump sum gets you something tangible to start with, rather than some feeling that you don't have to pay back money you may never have to pay back anyway.

Any money you have goes through your hands only once. When they're done with uni that money is gone.

LISA account (or two) is an excellent idea if you don't want to take the plunge into property right now.

I would. It’s 40 years now from Sep 2023 I think and the payment level will be frozen plus t&c’s could change anytime. If they are likely to be reasonable / good earners over their lives they’ll probably pay most or all of it back over 40 years.
It’ll be like a monthly gift to them from their grandmother every month for the whole of their working life.

When does the interest start from? From when the loan is taken out or from the April after they graduate?

Interest starts from when the loan is taken out.
So by the time they graduate there will already be 3 years interest added from the first year.
You should check out the interest rates - they're higher than putting into a savings account.

People seem to think the 40 year write off means they won't pay anything, but it quite likely means they will have paid at least the loan value plus interest but not finished paying it all, especially if they're an average earner.

Your DC's disposable income will be reduced (as the payments are taken directly from salary) so this will reduce the amount they can borrow on their mortgage.

Definitely not! have you looked how much they would need to pay back monthly? It’s relatively low amount and is not taken into account when obtaining a mortgage or financial agreement .

Why are people saying student loans aren't taken into account for a mortgage? They aren’t considered in the same way as other loans, but they do factor into the affordability calculations.

The gov website says:
“Student loans are different from other types of borrowing because they do not appear on your credit file and your credit rating is not affected. However, if you apply for a mortgage, lenders may consider if you have a student loan when deciding how much you can borrow.”

Think about it in terms of how long it would
Take them to save up a deposit lump sum from the increased income of no loan payments compared to how much more money they will make from having a deposit upfront and then paying off mortgage and benefiting from being on the property ladder over the same period. It’s a no brainwr. They will long term almost certainly be better off having a lump sum up front for a deposit (used either for themselves or a buy to let - property in a uni town for them to live and rent the other rooms is a cracking idea)

house in university town that DC1 live in rent free - and possibly have uni friends as lodgers, which will give them an income.
I'm not suggesting pack it out like a can of sardines & avoid HMO legislation, but it could be an easy option?
When they've finished university, sell off the properties, repay any debts incurred on fees - or let them use it as a deposit.

Any possibility that DC2 will conveniently want to go to uni in the same place? If not, halls for first year, then use proceeds of house sale for house in second university town.

I have wondered similar. We have always saved worthy the view if paying uni fees but not sure if it is the best use of a lump sum. A lot of people use the argument that the DC may never pay back the loans, however surely many will end up paying more if they go into a high paying career and the loans are accruing above inflation interest?

Get them to go to the same uni. Buy a house that they can live in and be in charge of renting the other rooms to pay for upkeep, bills, cash.

At the end of both their courses, gift them the house to sell/rent/split/manage as they see fit.

Absolutely not. No point whatsoever

@SickAndTiredAgain people are saying the loan isn't taken into account when they apply for a mortgage because to all intents and purposes it isn't. By that I mean it's not treated the same as a regular loan. Eg if you went for a mortgage with £56k in debt you wouldn't get one because your repayments on the loan would be so high you would be viewed as a bad risk because you couldn't afford both the mortgage and your loan repayments. But if you apply for a mortgage even earning some way over the student loan repayment threshold your repayments will be a fairly small proportion of your income so you can afford a mortgage as well.