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?

Also another thing to consider is would it come with conditions to pay off the debt - would you feel cheated if one of your children decided not to go (or to stay) at uni or what if they moved somewhere else in the country with lower wage expectations?

I'm definitely projecting here but I hated university, hated my course, hated being away from home. It was easy for me to make the decision to leave because noone else had "staked" money on me as an investment - if my parents had given me money for that purpose I would have felt obligated to stay and get a career in that field. For me, it would have been a lot of misery. (I'd just like to point out my parents are the chillest and wouldn't have judged me anyway but I'm that kind of anxious person that I would put that pressure on myself).

Only you know yourself and your children and how this will impact on you/them.

@Blossomtoes

And you pay back more than you owe - because of interest! So you will end up paying back way more than you borrowed!

Like when you buy a house.

It's not even REMOTELY the same. WTF are you on about?

It’s precisely the same. You borrow £x and you pay interest on it in both cases. If you’re seriously unable to see that, there’s no hope for you and nobody with any sense would accept your financial advice.

There's no hope for YOU. It makes FAR more sense to pay off the student debt for your DC. What's the point in them having £40K paid of a house (that will probably be £150K plus anyway,, so they will STILL have over £100K mortgage,) when they have the £50,000 DEBT hanging over them for LIFE. And the more they earn, the more of this debt they pay. And the interest on this £50,000 DEBT could make it many 1000s more.

Can't believe you don't see this.

The thing that strikes me, is that so many people advise OP to invest the money or buy property.

Doing either of these things requires a level of financial confidence and knowledge that lots don’t have or don’t want the burden of. Many have never invested before and fear the value of their investment dropping drastically. Others have never had a buy to let and worry about rogue tenants, high taxes on sale and other legislation to fall foul of. So these alternatives for the money are not simple alternative money-makers for the average person.

Personally, I’m putting away the full fees of as close as possible. We will take the loans and we will the. Be reserving judgement and seeing how things turns out. At some point in late 20s or early 30s it is likely DC will want to buy property. By that stage we will have an idea of their careers and if they are buying with another person or solo. We will also know if they are on a trajectory to high earnings or it’s unlikely. This will inform whether we choose to pay off the loans for them at that point or give the decent deposit. This will be a conversation to be had with them and in light of their financial situation. But there will be a sizeable gift of perhaps £60k for each DC at some point and possibly more if any grandparents leave them money. It might be that they have a wealthy spouse by then who earns well and doesn’t really neeed our £60k towards their house and it’s better used to end the student loan. It could be that by then they have inheritance money or other stuff. By late 20s the picture for many is becoming clearer and a more informed decision about what to do with the cash can be made. At 18, who really knows the future - there are so many unknowns.

This £60k - it’s lovely, but it’s not going to buy them a flat in London, or even provide a really hefty deposit. But of course it would take most 20s a good while to save £60k. In other parts of the country it’s going to be a big help.

What I read with most interest is the comments from those a few years on, in their late 20s and early 30s. Most of them point to the difference getting family help onto the property ladder makes. I think it’s a key point. Yes, in your 30s student loans bite hard when you’re already paying childcare, facing new and big mortgages….but if you’re on the property ladder, you can usually weather that. It’s those who have kids and still haven’t got on the property ladder and have no chance if of accumulating a deposit so they can buy pretty much anywhere that have the real problem. The decent parental contribution to housing (instead of Uni fees - because most won’t be able to do both) seems to be the thing which makes the biggest practical on the ground difference, at the point it matters most.

Perhaps the ultimate thing isn’t the cost of the loan. Those compound interest rates look bad and of course no-one wants to think about them. But the thing that matters for most is being able to live your life and do the things you want to and need to, when you need to. The degree sets the career off. The housing gives you stability. People need both.

And no-one HAS to accept my financial advice. I will do what's best for my DC - if others don't want to, that's their choice. Giving them less than a fifth towards a house, (as a deposit) is no WAY as good or helpful as paying off their entire student debt.

As for Martin Lewis saying 'do not pay the student debt off' well HIS advice has been prove to be less than brilliant recently. Maybe you @Blossomtoes should stop watching The Martin Lewis Money Show. Same advice to a few others here.

We will be paying the uni fees and living costs up front. House deposit they can save for once working. There are so many schemes to help first time buyers and owning a house isn’t the end all and be all. Prior generations of my family never could own but always rented their entire lives. It’s not a necessity to own a home.

The student loans are debt and every few years the government changes the rules to cause graduates to pay more. This is in the T&Cs that they can actually do this to current students and graduates....so you can’t assume the loan repayment terms will be the same ten, twenty years after you borrowed the money.

The interest is eye wateringly high the repayment threshold is being lowered to £25k from £27k...which is actually lower than the average wage in the U.K. of £31k. They want lower earners to pay back more. Probably because there is clear evidence of abuse of the system of people going to Uni and then deliberately taking BS low skill jobs to avoid repayments. The taxpayer is investing in students to gain skills to benefit society..not to work at Tesco’s and claim UC.

The loss of 9% on all earnings over the threshold will hamper their ability to save for retirement.

Middle earners are actually hit hardest by the student loan as they end up paying far more than they borrowed and more in total than high earners as high earners higher payments pay off the loan well before the full 30/40yrs. Middle earners often don’t quite pay off the loan in full due to the interest constantly accruing, but they pay the most in total and for the full 30/40 years. And most graduates go on to be middle earners...not low or high earners.

Another one to go against the grain.... if you can afford it, why wouldn't you pay their tuition fees? The rules have changed and many will pay it back (plus much more) so if you expect them to be high earners, and not even that high, it will save them an absolute fortune.

My ds (going to Uni in September) has just had a talk today on student finance. He's come home saying 'can we pay the fees and he will pay us back?' Interest (at a high rate) starts accruing as soon as you take the loan so it builds up quickly.... many may never pay it back but plenty will pay much more back than the original amount borrowed.

Maybe you @Blossomtoes should stop watching The Martin Lewis Money Show

Never watched it in my life 😂

From Intergenerational Foundation:
www.if.org.uk/2022/02/25/regressive-student-finance-plans-will-punish-low-and-middle-earners-the-most/

“For example, a graduate who earns a starting salary of £30,000 will see their lifetime student loan repayments increase from £29,000 under the current system to £68,000 under the new system, using the following assumptions: 3% annual pay increase; a repayment threshold increase of 2% annually; 3% RPI; and a student loan debt of £45,000 at the time of graduating.

Under the same assumptions, someone with a starting salary of £50,000 would have their lifetime repayments almost halved under the new system, from £109,630 under the current system to £61,743 after the reforms.”

£30k is slightly below average U.K. wage of £31k....so a middle earner will pay back more than they borrowed and thousands more than a high earner over their working life.

And we know that if you take out full tuition (£9,250) and full maintenance (£9,706 outside London to £12,667 inside London) loans your debt will closer to £60k not the £45k in the example and with the interest, you’ll be paying back much more than the above. Especially since tuition won’t be frozen forever. It will start to increase at some point in near future.

It depends…..like most things.

If you have plenty plenty of cash and can afford to pay your kids’ fees and help them get on the housing ladder….great, do both.

If you can’t do both, which is ‘best’ probably partly depends on where they might live.

Lots of graduates in LOndon and the south-east and elsewhere too find it very very difficult to get on the housing ladder, even with good graduate jobs. Even if their fees have been paid off, many will still struggle to accumulate the size of deposit necessary. This is becaue rents are high and saving is difficult ….regardless of student loan payments. By the time they are 30 many won’t have accumulated enough if they have to do it fully on their own.

What about with parental help? Well £30-60k won’t buy a house outright these days. In LOndon, the upper end might only provide 10% deposit on a £600k property….but the key point is that £30k-£60k with whatever they have saved up and a graduate job (especially with 2 earners) will be enough to get something. It won’t stretch to the £600k flat becaue earnings for most still still won’t be high enough, but it will be a big help in buying a property for £250k-£300k and you can get this everywhere. In some areas that’s a 1 bed flat and in others it’s a decent sized house. And crucially, it’s being on the property ladder which might not have been possible without the help, even with a big salary and no student debt.

If you can give the £60k of fees and then you can give your kid another £100k towards property, well fine…do both. But lots can’t do both. Most are pleased to do one or part of one and offer £20k or £10k or whatever they can afford. It’s all a help.

In the end, to get property you HAVE to have the deposit and the earning power. Parents can help with the former. Many people without that parental help have ZERO other way to get on the ladder.
To get a degree, you have to fund it and there are loans available.

To me, it seems there is one available to all and there is help outside of parental spheres. The other (property) will always needs a deposit. That’s where people all down and that’s wheee parents can help. For most, it will be the best use of the money. That could be property bought (with a mortgage) for a student or a deposit given later.

Lots of graduates will never be big earners. They will be solid earners. If their parents help them buy at 30 and avoid another 10-30 years of rent, they’ve done them a huge favour. Having had their fees paid off means they could still be renting in their 40s…and that’s a greater millstone round the neck.

@MurmuratingStarling

I agree with you. All those parameters (interest, length of payment, minimum amount earned) can be changed by the government. And why does it have to be a greater rate of interest than a mortgage? It's not like the graduate can escape paying it. Young people are signing up for this because they think they won't be screwed. I don't have that faith.

And it's a terrifying amount of debt. And unlike buying a house, you can't sell the house to pay it off. I am advising my children to go for degree apprenticeships unless they want a career that requires a degree and no substitute would do, and only then if it is a relatively well paid career.

I think it’s interesting to see some of the emotive language used around the student loan- millstone around the neck etc. I think this is partly what Martin Lewis has been getting at by trying to reframe it as a graduate tax.

In reality, it is a different sort of debt in that there may be periods where you don’t have any obligation to pay it. When I was on maternity leave I didn’t pay a penny. If I’d never gone back to work I might never have paid it off. I was laying a lot off each month and I was relieved I paid it off but the monthly payment wouldn’t have made a debt in mortgage savings.

Eg I have the example above of someone on £50k probably paying back around £2100. If they saved that payment instead they’d be taking years and years to acclimate the equivalent £27k for a deposit- maybe 13 years.

Scenario 1: no loan- use loan money for deposit. After 13 years accumulating £175 a month at 3% growth could end up with £33k.

Scenario 2: start with £27k and get 3% growth over that same 13 year period end up with £39k or £51k if 5% or £76k at 8%.

If earning a flat £50k for those 13 years would have paid £27k of loan (16k interest) and would still have debt of £16k and likely another 10 year of payments.

I’d personally rather be in scenario 2 for the possibility of high gains on the lump sum and lack of certainty that the child would use the loan money to save instead but that wouldn’t be for everyone. Lots of people would look at those scenarios and be much more comfortable with scenario 1. It’s a very personal risk tolerance calculation.

[quote fluffedup]@MurmuratingStarling

I agree with you. All those parameters (interest, length of payment, minimum amount earned) can be changed by the government. And why does it have to be a greater rate of interest than a mortgage? It's not like the graduate can escape paying it. Young people are signing up for this because they think they won't be screwed. I don't have that faith.

And it's a terrifying amount of debt. And unlike buying a house, you can't sell the house to pay it off. I am advising my children to go for degree apprenticeships unless they want a career that requires a degree and no substitute would do, and only then if it is a relatively well paid career.[/quote]
Thank you. Some logical common sense posts are starting to appear on here at last! From you AND several other posters over the past few hours. 100% agree with your post too.

And it's a terrifying amount of debt. And unlike buying a house, you can't sell the house to pay it off.

Very good point, and one I was trying to make earlier but couldn't seem to find the right words!

As you say, you can sell a house and potentially makes 10s of 1000s of extra £££ - (even 100s of 1000s in some cases.) There is nothing a post grad can do to pay off their student debt quickly (themselves.) Unless they have the good fortune to start earning a very high salary (close to a six figure sum,) in their 20s, and live with their parents until they pay off the student debt! That's just not going to happen though is it?! Not to 99.9% of post grads anyway!

And I agree with you that I worry they will be fucked over in the future.

As I said, just like with the insistence that everyone changes bloody energy firms every year and we were all stupid if we didn't; Martin Lewis is not correct about this. Many young people would benefit massively if they had £45-50K, and they paid off their university debts with it.

If someone won £50K on a lottery ticket, and put it down as a deposit on a £200K house, and left their £45-50K student debts and loans owning (for which they'd be paying for 40 years, and have hanging over them everywhere they went, and which would increase to potentially £60K to £70K or more,) I'd think they were batshit.

The best thing a parent could do for their adult DC when they have graduated, is pay off their university debt. (If they can afford it, with no detriment to themselves obviously..)

I think keeping the money as a lump some makes more sense than paying than paying the fees which may never even need to be paid back.
Think how difficult it is to save up a lump sum. I think most people in their 20’s/early 30’s would prefer 40k towards a home compared to not having to pay a monthly amount in student loans.

“If someone won £50K on a lottery ticket, and put it down as a deposit on a £200K house, and left their £45-50K student debts and loans owning (for which they'd be paying for 40 years, and have hanging over them everywhere they went, and which would increase to potentially £60K to £70K or more,) I'd think they were batshit.”

And I would take the opposite stance on the basis that those loans may never need to be paid back but putting the money into the house would provide security and stability, avoid the need for rent payments and would likely appreciate in value.

The year fees went up to £9k was 2012. The average UK house price then was £162k, it’s now £253k. So someone choosing to use £50k to buy a house then would have had a 200% return on their investment and a roof over their head for ten years. Whereas if they’d paid off their student loan, there would be no return and they’d have been trying to save a deposit while throwing money away on rent. No brainer.

I wouldn't use the money on uni, I'd get the loans and then see where things were a couple of years after graduating. I know someone who paid all the fees for their dc 10 years later and they're still living at home!
You have no idea what's round the corner, illness, pregnancy, mental health, change in career ambitions etc but having the cash gives you options at least.

those loans may never need to be paid back

I think, in the case of my sons, they will be paid back. I know them well enough to bet they will get reasonably well paid jobs, probably in London or the South East. I think Martin Lewis quite reasonably aims his comms at the average student, or at those from low income families that might be put off going to uni, rather than to people like us who have a sudden lump sum and need to decide how to spend it.

Someone mentioned up thread that Martin Lewis once wrote a blog on scenarios where paying the fees upfront might be the best option - I haven't been able to find it, so if anyone knows it, please post it here.

i had 230K in an investment account.
i have since last august been withdrawing 2k a month.
the account is still invested but with very little trading and lower fees and today i still have over 227K.
i'm using this 2 k to pay down a loan.
the bank which deals with my investments and my loan were not at all thrilled with my plan (as they are loosing money on the trading, and loosing money on the interest the loan is generating).
maybe a similar plan would be available to you that will allow the best of both worlds helping reduce the burden on the children and maintaining a certain chunk.

Well obviously if you're all guaranteed mega high earning guaranteed mega high achievers, even those of you still in school, it's different op. The rest of us ie pretty much the entire rest of the population who can't predict what their kids will earn all the way through adulthood will obviously make different decisions.

I would if I could. The government have changed the rules before and will probably change them again. I wouldn't risk the debt being sold on or the repayments being made less favourable in future.

The key is whether the young person can fund a property purchase without parental help. Can they build a sufficient deposit and earn enoughto g et a mortgage?

It is the fact that most hugely struggle with this, that means the money is better spend providing that deposit.

It’s not that the student loan is welcome or the internet on it good. It’s just that in most cases there’s only sufficient mo et to help with one of these major costs. The student loan is the lesser evil of being stuck in rented well into your 40s. And that’s the reality for large numbers who live in expensive areas of the country…even with their graduate jobs.

@BookkeeperBobby

Well obviously if you're all guaranteed mega high earning guaranteed mega high achievers, even those of you still in school, it's different op. The rest of us ie pretty much the entire rest of the population who can't predict what their kids will earn all the way through adulthood will obviously make different decisions.

Did you miss the IF calculations? Under the new rules a graduate earning £30k per year will pay thousands more back than a graduate earning £50k per year and tens of thousands more back than a graduate earning £100k per year.

The new rules penalises the low middle earners...which is where most graduates incomes will be. Martin Lewis advice is based on the old rules, not the new ones. And the government trend is obvious..,new rules every several years that make it worse deal for middle earners to take on the debt.

And I cannot emphasise enough how much losing 9% of income over threshold impacts long term savings for house deposits and retirement. It’s essentially going up an income tax bracket.

That’s even before we consider the numerous scandals of graduate paying off their loans in full but the student loan company records being faulty and still taking money out of their pay packets and the sheer stress of having to fight for years to stop the deductions and then fight to be refunded.

Under the new rules a graduate earning £30k per year will pay thousands more back than a graduate earning £50k per year and tens of thousands more back than a graduate earning £100k per year

I’d have thought that was obvious to anyone with half a brain. Any loan will cost you more the longer you take to repay it. It’s basic economics.

@Blossomtoes
Exactly. However new rules makes the difference even more stark.

Am I being really stupid? That table makes absolutely no sense whatsoever to me.