AIBU to ignore Money Saving Expert advice?

[Lookingafterthepennies]

Has anyone regretting taking out student loans rather than using savings to cover tuition fee costs?

My children are in for fortunate position of having an amount equivalent to over 2 years worth of tuition fees in their trust fund accounts. I understand it makes more financial sense from a numbers point of view for them to keep that money invested and use it for eg a house deposit in the future, and take out tuition loans, but the idea of them having to pay back a debt for most of their working lives makes me feel a bit sick.

So AIBU to think the psychological stress of having a never ending debt is worse than the the benefit of having a big chunk of money to use for something else.

YABU: it’s fine, you accept the debt and it doesn’t really phase you

YANBU: the never ending dent in the pay packet due to loan repayments is demoralising and should be avoided if poss.

If there is no other chance of a contribution towards a house deposit for them I would leave the funds alone and get the loan. If it is in addition to a house deposit contribution then avoiding the loan is clearly the way forward in my view. But chunk towards a house deposit should be prioritised if it is a choice.

But it isn't classed as a "proper loan" ... Even by mortgage companies! It really isn't like being in debt, it is definitely more a 'graduate tax' as PPs have said.

Yeah I don’t really get this because people don’t seem to take into account that a student loan will be taken into account when they eventually apply for a mortgage (as it should be - obviously money going towards repaying a student loan is money that can’t go towards paying a mortgage or other living costs). But not something I’ve looked into since DD is still some way off university!

It definitely is taken into account my mortgage companies!

Really depends how much they earn , my dd doesn’t earn enough to pay anything back and lives at home so has minimal expenses. My ds however earns an ok wage and flat shares his job is also commission based so some months he will have £300 + taken from his wages so if I could afford it I would pay his debt off or a big chunk of it .

It may depend on what they do at uni. My DD is an OT, a NHS degree so her student loans were only around 6k she had it paid off in a couple of years and now 5 years older is just about to buy her own house

I mean they don't get taken into account on a credit check. So they're not weighted in the same way as e.g. car finance / credit card debt etc.
Student loans are deemed an outgoing, not a debt.

My student loan, back in 1999, so nowhere near as costly as today, taught me never to take any kind of credit - I paid it back as soon as practicable, started a business and have watched that grow and grow.

I have never had anything further to do with money lenders, credit cards, supplier credit, nah, pay for it or don't have it.

That's what SL taught me!

But that's not a good lesson.

There is nothing wrong with debt and credit as long as it is managed properly. My credit card, for example, makes me money, gives me consumer protections and allows for me to budget across a month.

A student loan gives people the most favourable terms of any loan they will ever had. Sacrificing savings because of some fear of debt is just daft.

And, with strict affordability checks no longer a thing, they are even less of a concern for lenders now than they were.

Someone trying to get a mortage with 20k in savings and a student loan is going to have a far, far easier getting a loan than someone with no savings and no student loan.

Well, if you like those kind of arrangements fine - but it put me off for life, I've never had credit from anyone else, and life's been fine - its not how I want to roll.

That's fine, if that's how you want to work things personally.

But it's bad advice to discourage any and all forms of credit and debt.

Agree with Martin Lewis all the way. My understanding is student loans are a different kind of debt. The amount you owe and any increasing interest is in most cases irrelevant. You could have a debt of millions but what you pay back will always be linked to what you earn.

Some very high earners may end up being better off paying it off in full rather than chipping away at it over the course of their careers. You'd have to work out what you expect to earn against the repayments.

As far as psychological stress goes, generally people don't think of tax and NI as a never ending debt. And they are paid in the same way.

The MoneySaving expert advice I saw last year was that someone in this position should take out a loan initially, then once they start their first job, and can begin to predict if they will be high-earning enough to have to repay their whole loan, they can pay it off then, if it makes sense.

I would look at this really carefully and not through the lens of the generation that went to uni in the 90s and 00s. The logic around graduate tax and it being written off eventually does hold for lower earners. Where it gets expensive is those who earn in the middle - who do end up paying a lot back over 30 years as the gap between the threshold and their earnings widen. The interest rate isn’t that competitive (between 3% and 6%) and it can feel like a huge chunk of money missing each month from a £50k wage for a 40 year old who has kids, a house and all the crazy COL stuff going on down the line. Of course you can live without that cash every month, but it hits much harder for middle earners for home the 9% chunk is significant over a very long period.

To put it another way, if you take out the loan initially despite having funds that make doing so unnecessary, you have a choice whether or not to have a loan in the long term, a choice you can make when you have more information.

If you don't take out the loan, you are irreversibly choosing one option before you've gathered some of the information that will tell you which option is best.

If you look at it as a graduate tax rather than a loan, that might help. Would you pay your income tax bill in a lump sum if you had the money? It doesn't count as debt in the same way a regular loan or mortgage does. I'd keep lump sum savings for a mortgage as you get better rates the lower your loan-to-value is i.e. bigger deposit = better mortgage.

Thats exactly what we were sold. And it’s the complete opposite of that. I think I am on something like 6 or 7% interest atm.

In my whole adult life it has by far been the most expensive loan I have ever had by a factor of c. 300-400%

And I am a lucky one on quite ‘favourable’ plan 1 terms.

And to everyone saying oh it’s not a debt, it’s not much etc,

Can you imagine if Rachel announced tomorrow that she is increasing income tax by 9%

The country would lose its absolute shit. There would be riots on the street.

It is a debt. It affects your affordability. So it does have bearing.

If you can pay it.

Watching

Ultimately of course you are only advising them, it is their decision not yours. You need to be really, really sure you're right if you are advising them to burn through their money as quickly as possible.

We have spreadsheets that say long term DD may be many tens of thousands better off taking the loans. We have factored in the extra expenses of years of paying rent, rather than mortgage, while she saves up a deposit. What we have said to her, though, is take the loans for now and if you want to prioritise paying them off over a house deposit when you're older, then do so. Taking the loan keeps her options open. Spending all her money on uni fees doesn't, and may make it harder for her to justify a placement year or master's. Obviously if she goes for early payback after graduating she'll have to pay some interest, but I think keeping that flexibility is worth it. Better that she make the decision at 22, or 25, than at 18.

It's not the same as other types of debt. It doesn't appear on your credit report and if you can't afford to pay it off, you don't have to. No other loan or mortgage you will take out will let you do that.

What it is, in reality for most people, is a graduate tax. The interest rate on it is irrelevant as most people now will never pay the loan off before it is written off.

Graduate tax - therefore reducing the amount they take home when working. If you can help prevent that, why not? I have many peers still grappling with multiple deductions from their take-home and I am eternally grateful my parents ensured we didnt have student loans.
They are a perfectly fine vehicle to ensure everyone has access to higher education but if you can give your kids the head start of no additional 9% tax - what a gift!

With no student loans and living at home for 3 years after uni - I was able to save up and buy my first flat (mortgage) by 25

I understand what you mean.
I used savings to pay off my student loan. Psychologically it was worth it to me. I also paid off the mortgage I got later ASAP, even though I could have got more interest in a savings account. Don't regret that either.

But I think it depends on your mindset and what the child's likely career path will be. And how soon they want to buy a house.

TBH a large part of this comes down to if your can afford the £9500 per year fees plus cost of living which if they live away is about £10,000. Most middle income families cant and have to take the loans . I have one on plan 2 and one on plan5. Neither particulary atractive but we had no choice. Those saying my child had an student loan and paid it off in 2 to 3 years were refering to either a pre 2012 student or not in England, lets not forget both Scotland and wales treat thier students alot better ( not familier with northan Irland) . Our.plan with DS who has just started paying back was to.use his trust fund to support his studies and his house deposit. The current real issue is Reeves not raising the inital munimun sakery payment thresholds in line with average wage as outlined in the loan agreement he signed in 2021! They have lots yet anothe 4 vote becuase of this from a prevous labour family.