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.

20k in accessible cash is far more useful when you are starting out. That's why.

Has it changed from when I was at uni?

I have no clue how much I have left on my student loan. I’ve paid off a little, when I had a high enough salary to qualify for repayment. But it gets written off after 30 years, doesn’t it? So why would you pay a loan that most likely you won’t repay anyway?

Or I’ve misunderstood and am about to get a horrible awakening in the comments.

You’re right it’s not! If these were private loans they would already have been struck off in court as being illegal!

Awful idea!!! DO NOT DO THIS!!! You and your children will regret it. Take the student loan!!!

The current loan arrangement is for40 years. So that means it is either paid off or the student will be paying an additional 9% for the whole of their working life. It’s unavoidable for most. It’s simply not a choice many people have. And if it means no house deposit the loan is still best. But basically everyone will begin paying it and will either repay it all or be gojng fo 40 years.

I would not be surprised if we saw changes to the system over the next few years.

The conversation regarding loans is now starting to gain traction because those who were affected by the increases (starting university in 2012 and onwards) are starting to reach points in their careers where this is really affecting them. The numbers are only going to increase over the next few years and we’ll see more and more people calling out the insanity of the current system.

It’s now written off after 40 years and the repayment thresholds are being frozen.

So more people will be dragged into repayments and they will still be making repayments when they are 61 or 62 years old. Incredible, really.

100% take the loan. A monthly repayment tied to how much you earn, bit of a pain but no psychological stress. No way of getting on the property ladder = big psychological stress.

Yes. They are up to Plan 5 now and they all have different T&Cs. Also what you pay back massively depends on how much you earn. What was right in the past might not be best for future students.

But what has changed with the current plan is far more Plan 5 graduates will pay theirs off compared with those on previous plans. Even though the interest rate might be lower, the cost for a typical graduate has nearly doubled and hardly anyone has noticed.

As to whether it's right to take the loan depends on many factors, many of which are unknown. Get it right and it could save you tens of thousands. Get it wrong and you could be throwing tens of thousands away, especially if you pay fees instead of taking loans and your DC stay in low paid careers or spend an extended period as a SAHP etc.

I’ve thought for a few years now that student loans will be the next big “mis-sold a …..” scandal. Plan 2 has been in the news lots this week and I hope this is the start of a proper investigation into student loans. I have returned to full time work to pay for as much of the DC’s higher education as possible. It worries me that they could still be servicing their own student debt while trying to support their own DC through uni.

My DC’s dad has paid for their uni. The interest is really high. DS has graduated and is a trainee actuary so will definitely make enough money to repay all the debt. He didn’t think it made any sense to pay the interest when he had the money. House deposits - DS and his gf are saving for a deposit, they are living rent free at moment in ex’s house as he is overseas. Ex may assist with a house deposit, but if not, they are saving. I personally think not having student debt is a good thing if family are in a position to help.

That's about plan 2. The current plan is different- interest rates are fixed at RPI.

This.

Martin is giving advice for the masses. these loans have evolved and if your kids are high earners it will def shaft them.

https://uk.finance.yahoo.com/news/biggest-student-loan-records-nearly-093421972.html

Sobering reading.

I do not envy teens and 20 somethings

I've just played about with numbers for plan 5. If DS gets the NHS job he wants he will be initially paying back £37 a month which means he'd never pay off the loan on a £30k salary.

But it's a 40 year loan so the salary he'd get now is going to increase due to inflation. I bet the threshold for repayment does not. Does anyone know if this is the case?

So say in 20 years he's on £50k due to inflation and pay scale increases he's then paying back £187 a month. He'll still never clear the debt because it will be so high by then due to the interest applied.

If you are rich and can afford to pay the fees I definitely would. If it's a choice between the fees and a house deposit the latter is definitely best.

If it's a choice between a house deposit and a student loan I would go house deposit. If it's not that choice, then my student loans are an incredibly expensive debt and if someone told you you'd be paying an extra 9% on your tax rate tomorrow I'll let you imagine how well that would go down.

It means that I pay over a 50% tax rate on everything above 50k and if I'm lucky enough to reach the 100k mark the taper band will make even more of a mental tax rate.

I'm in the top 5-10% of earners and am only just paying off the interest. I need to do the maths for if I should just pay them off in cash but even that makes me cross because it means those who are wealthier (either at uni or e.g. me now) have the option to buy our way to lower tax rates. (To be clear if I did pay it off it would totally rinse my savings, so while I have good savings that would then prevent me from e.g. having money for moving house for example.)

In my view, if it’s either get the loan or use the money for a deposit then it’s the latter. Why would you want your child paying dead money on rent for years and years? And not everyone has partners to buy with. The average house price in the UK is I think £260k!

I just repaid the last couple of K on my student loan because I was gifted a large sum out of an inheritance, and we're buying a house next year.

I had run out of tax free places to put savings, so I just decided to clear it so that my take home is larger when we apply for a larger mortgage.

That's one of the few circumstances where it might be worth it. Paying upfront is madness, and all about your psychology rather than the financial facts.

Do you have any background issues with money, OP? The only woman I knew who paid off her loan was a total spendthrift who hated debt but spent money like water, hung onto assets she could have sold, entered then left car leases, put her house on the market to downsize then took it off again...

Some of this depends on what you think the earning potential is for yout children. If they're aiming for careers where their repayments will stay low then 100% take the loan.

If they're going to end up 50kish+ I think it gets more nuanced, as it is a drag to see hundreds disappearing from your pay check for it, with no real prospect of it ever disappearing. Its an extra tax in effect and not a small one.

If its house deposit or loans then the house deposit will end up more useful, if you can easily afford both then I'd give them the debt free start as well.

My student loan is ridiculously large having done a vet degree. I do not regret taking the student loan and maintenance grant. I barely notice the repayments, haven’t even touched the original balance in terms of paying it back due to the interest. I think you’d be mental to use savings to pay for it - that money could have a much bigger impact on their lives spent elsewhere eg a house.

when I say ridiculously large, I mean over £120k! But I have a mortgage, car, etc and a great credit score.

The plan 2 loans are terrible on interest, I would hate to have that hanging over me. DD1 will have a latest plan loan which is different but I can see your point of not having it hanging over you.

All depends. At 39 a friend is paying hers off having hit the income threshold, she’s also recently divorced and had to downsize. It’s come at the worst possible time.
I worked through uni and had two modest loans and a grant back in the day when they offered them. My parents paid my loans off (I paid them back). I hated the stress of seeing that interest creep up.

We were all sold the lie of “cheapest loan you will ever have” (plan two) and the debt keeps rising even though monthly payments are high.

please do some research about different outcomes. I feel like I as a child (with well meaning but not financially
literate parents) have made life much harder than It needed to be.

I too believe we are looking at a misselling scandal and so many of my peers are opting out of pensions as the cost of living is pressuring us that there is a generational ticking time bomb as we get older too.

There is a difference between plan 2 (which mine would have been on) and plan 5 which current students are on.
If you are on plan 5 the loan will be written off after 40 years. You start repaying at a lower threshold, but at least you - currently - have lower interest than plan 2.
Interest starts accruing from the first day the loan is taken out, not when they finish uni

My two daughters inherited £20k each from their grandparents.
We advised them to use that money to pay towards the tuition fees.
We were in the lucky position to pay the rest. Even though we certainly felt it.
Luckily they weren't at uni at the same time, so the cost was spread for us.

Both had part time jobs during their studies, because our allowance paid for rent, bills, food and we covered extras like sports, or a pair of shoes or dental cost, they had to earn their going out money (apparently working up to 10 hours per week, actually helps students to plan their week better and they seem to do better than students who don't work or students who work more).

Our elder (25) is about to start a job where she earns £60k. I'm so glad she doesn't have to pay the extra 9% over the (I think £28k threshold)
I don't know the figure, but I assume she'd pay back about £250 a month - while the loan amount would still increase. Yes, it does get written off after 30 years.
But those are also the years where you really feel if you have £250 more or less to spend each month.

So going against the grain, I think if you can afford it, don't go for the student loan

Rachel Reeves is changing this so I would read up on student loans very carefully before taking strangers advice on here

All 3 of my children have substantial student loans. My oldest worked abroad for a few years on a high wage so has almost repaid hers at 40. My other 2 will probably never repay theirs- one works part-time as a mum to 2 children, the other is a low earner. They all have their own homes with mortgages - even the low earner (who is single). They used a small inheritance each (about £15k) when their grandparents died to get on the housing market.
Why would you want to waste that potential deposit?