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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

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

135 replies

enseehammer · 15/03/2022 21:08

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?

OP posts:

ThinWomansBrain · 15/03/2022 22:37

On the buying the house - I think you may be able to vary the will so that the money goes directly to your children to purchase it (of course, you're taking the risk they use the money as you wish).
Minimises IHT, gift issues, any possibility of rental income being taxed as your income.

Mintlegs · 15/03/2022 22:44

Yes, I would pay it off if you can afford to especially if they are going into higher paid jobs. Some people don’t tend to consider the interest

SeasonFinale · 15/03/2022 22:50

[quote BookkeeperBobby]@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.[/quote]
More it would still be 9% of their gross salary on everything over the threshold. The OP has said that it is likely they will be in highly paid careers. With the new term being 40 years it is now going to be the case that more than half WILL pay it back. Even if it takes the whole 40 years that is an extraordinary amount of compound interest they will pay. Thus is the circumstances it probably is one of the cases where it will be better to pay it upfront if the mkneybis available.

ZaZathecat · 15/03/2022 22:55

If you have that kind of money I think it makes more sense to gift it to them for a deposit in a home, when the time comes.

mocktail · 15/03/2022 22:55

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.

Does anyone really "get" their adult children to go to the same uni?! And share a house together? 😆

saltinesandcoffeecups · 15/03/2022 23:04

@mocktail

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.

Does anyone really "get" their adult children to go to the same uni?! And share a house together? 😆

They do if they say… ‘Hey free living while at Uni A or you are on your own for Uni not-A”

Original poster

enseehammer · 15/03/2022 23:14

@ZaZathecat

If you have that kind of money I think it makes more sense to gift it to them for a deposit in a home, when the time comes.

And do what with it in the meantime? If it is in a savings account, the interest will be less than inflation, and less than the inflation + x% interest that will be accrued on the student loan.

OP posts:

BambinaJAS · 15/03/2022 23:22

I would not pre-pay the whole thing.

But I would definitely help them pay for it each year.

If you can avoid them taking out student loans, I would do it.

BookkeeperBobby · 15/03/2022 23:30

And do what with it in the meantime?

As a pp said open a LISA for each. The government gives them money into it as I understand it.

MurmuratingStarling · 15/03/2022 23:39

@longtompot

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.

This. ^ In your situation @enseehammer I absolutely would pay off all of my DCs student/uni debt. It's a no brainer. This shit is for life virtually. It's getting to the point where it's not written off til they're virtually a pensioner. I would love to be able to pay off my DD's uni debt, and if I only came into 60 of 70 grand I would still pay it off for her before I paid anything for myself. We are mortgage free, but I would STILL pay off DD's uni debts before my/DH's mortgage.

MurmuratingStarling · 15/03/2022 23:40

60 OR 70 grand (not 60 of 70!)

Saracen · 16/03/2022 02:08

A tricky point is that the answer could be different for DC1 than for DC2. DC1's loan will be written off after 30 years, and unless they're a high earner, they won't have come close to paying it all back by then. So taking the loan makes sense.

The rules will change for new starters from autumn 2023. DC2 has to pay for 40 years. There's a much greater chance they will end up paying it all. That extra decade (what's more, a decade which is nearer the end of their working life, when they'll probably be a higher earner than they were when young) make a huge huge difference to the total outlay.

BasiliskStare · 16/03/2022 03:07

We paid eldest DC university fees. The money would not be enough to buy a flat and we weren't in a position to take out a second mortgage, I know the prevailing wisdom is to take out the loans but if DCs may get job which is higher paying I think it isn't a bad idea - I think Martin Lewis has a post where he works out what a DC has to earn where up front payments are OK or not. The other thing is - which I recognise is not necessarily the right thing to look at it - if you can afford to let your DC leave university without that debt - is that something worth having ? Probably more psychological than financial

Movingonup22 · 16/03/2022 03:09

In the meantime buy the investment property now? If you buy in your name you would have to pay stamp duty or sell and cgt when they want the money - but I’m sure there is a way of putting it in their name on trust if they’re under 18?

fallfallfall · 16/03/2022 03:39

speak to an advisor (but remember how they get paid...they make money on you investing with them).
my dh and i paid over time (x amount spread over the 12 months vs 8 or what ever uni consists of). while a chunk stayed in the bank invested (so we drew down monthly on invested money).
for lots of reasons it was the right thing for us to do. does it make sense? it did to us and that's all that matters.
btw all three of the kids were very grateful that they left school with no debt.

Usingit · 16/03/2022 04:21

Depends what sort of career they are likely to have, not all graduate jobs pay loads, if it's at the low end they may not pay much back.

Usingit · 16/03/2022 04:26

I just see, high earning jobs so I would probably pay it especially with the new rules. We didn't as DS is on plan 1 (pre 2012 so his loan is a lot lower).

Bunnycat101 · 16/03/2022 04:34

I would invest the money as house deposits. Now is potentially a good time but given losses in the stock market.

Having a lump sum is so valuable. On 50k they’d be paying around £2k a year for the loan. If that money was diverted to saving for a deposit it would take 13 years to save the equivalent lump sum of £27k. There is a value in and of itself of having a lump sum.

I wouldn’t buy a flat for students to live in. Halls is good fun and the second should be able to choose what university is best for them and not feel guilt tripped into following the first because of a property. The period would be too short for safe investing as well.

mjf981 · 16/03/2022 05:08

I'd pay the uni fees. Not having that debt around their neck when starting out in life would be great. And I don't think now is the time to be 'investing' in property. But I'm risk averse, and value being debt free.

BasiliskStare · 16/03/2022 05:33

I agree that if you are not going to have a highly paid job the loans stack up because you will never pay them back.

I am like @mjf981 & if you think DCs will be somewhere in the middle - being debt free could be a good thing - but again I say Martin Lewis I believe ( well certainly used to ) has a table which shows what earningsvs loan repayments make sense

Of course it only works if you are able to pay the fees / accommodation etc. & dependent on what kind of a deposit would make a meaningful difference. Personally I would never encourage all DCs to go to the same university because you could buy a flat for them - for a number of reasons

But everyone needs to make their own choices.

Original poster

enseehammer · 16/03/2022 06:34

@fallfallfall

speak to an advisor (but remember how they get paid...they make money on you investing with them). my dh and i paid over time (x amount spread over the 12 months vs 8 or what ever uni consists of). while a chunk stayed in the bank invested (so we drew down monthly on invested money). for lots of reasons it was the right thing for us to do. does it make sense? it did to us and that's all that matters. btw all three of the kids were very grateful that they left school with no debt.

I did speak to an advisor. They gave the prevailing view that the stock market is likely to outperform anything else over time. But that was before Russia invaded Ukraine. I think we're in uncharted waters now. Inflation is also high, and the minimum wage for paying back the loan is not rising with it. It's currently £27k which is a fairly typical graduate starting salary in London. If your wages rise quickly there's a point at which you end up paying back much more than you ever borrowed. I know there's a calculator for all this stuff on MSE, but once DS has flown the nest, I doubt he will discuss his finances with me at all, never mind inform me of his annual pay rises.

OP posts:

ShipwreckSunset · 16/03/2022 07:21

I agree that the £27k threshold seems very close in compared to the typical graduate starting salary for professional jobs, and likewise think a lot of people will therefore pay off the whole cost plus interest. I know there is more to uni than earning a high salary, but I would expect graduates going into professional jobs to be earning this quite quickly and therefore be saddled with loan repayments plus a relatively high rate of interest.

Original poster

enseehammer · 16/03/2022 07:27

I think investment ISA's and LISA's are great for regular investing (which spreads the risk) or small lump sums, but to put a large one-off lump sum at risk in very uncertain economic times is a more difficult prospect. Only a relatively small part of it can be invested tax free, which means gains would need to beat inflation + x% after tax.

OP posts:

PiccoloMaud · 16/03/2022 07:30

As someone in their late 20s with 2x student loans, I would have found money set aside for a significant deposit much more useful than not making SFE repayments each month. If they are going to be high earners and living in London, they will need a significant deposit to purchase property that their salaries could afford them.

Bunnycat101 · 16/03/2022 07:36

enseehammer You could get it sheltered by putting in some this tax year and some next: if you didn’t want to buy stocks and shares, it could be in a Stocks and shares ISA in cash until you’re ready to invest or put some in premium bonds.

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