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.

What if they don’t like the course & all the money is wasted?

@luckylavender

Then they pay interest on that loan like all the others. It's not free if you drop out

This is the situation my kids are in now.
Both left uni and are in good jobs. My oldest left uni 5 years ago and his debt has increased by over 10k in that time. What started at £39k is now over £50k. He is being charged interest at 3% over the bank of england rate on the capital sum and compound interest, and is paying 9% of his income monthly. Effectively, because he is a high earner he will pay back over £130k and by the time the 30 years has elapsed he will owe the GDP of a small african nation. If Rachel (or anyone who comes after her) decides to change the rules he will be up to his eyes in crippling debt.
Wages have moved since 2012 and the threshold has been eroded. You only start paying back over £27k and if your child is going to be a low earner or likely to have gaps in their income (for instance, to have children) then it may make more sense, but most of my children's friends are in the same boat, losing nearly a 10th of their income for most of their working lives.
I don't want my kids to have to bear this burden.. they deserve the incentive of keeping what they earn.

As others have said, definitely research this. It's not so simple as "it's the best loan you will ever get" these days.

Having to pay it off for 40 years is huge as is the fact it begins to accrue interest from day one of studying.
The plans all differ so investigate the plan they will be on.
The graduate job market is not what it was either.
All these things need taking into account.

Is it though? For women probably not. My loan balance has rocketed in the last 5 years where I’ve had two mat leaves and then worked part time. By the time my loan wipes off I will have paid off £110k when I borrowed £45k.

if they’re going to leave uni and either earn £60k plus from the get go, or never earn more than £30k then I’d say yes get the loan.

If they’re going to be middle earners, or take time off for children then I’d say pay as much as you can upfront.

I don’t think about my student loan at all. It’s just an extra tax to me that I never see so doesn’t feel like anything has been taken away.
A house deposit is so much more valuable and it’s so much harder to save.

Can I ask which Plan you are on?

What do THEY want? Would they prefer to have most of uni paid for or a house deposit?

We'll be letting our children decide. However, if it's for uni there will be strict processes ie we're not going to give them a lump sum, instead fees, rent etc will be set up for us to pay it.

I'd prefer it to go on something tangible like a house though.

We'll have a proper conversation closer to the time about the pros and cons.

I wish someone had actually explained student loans to me properly and what they meant. At 18 they were pushed so hard and I just saw it as free money that got paid off at some point.

Unfortunately the nature of my scheme means I barely cover the interest each month. So it's not been "the cheapest lending" I'll ever have at all. The APR might be low but because I will never pay it off, it is bloody expensive. It passes me off every time I get my statement. Not helped by the fact that my husband was at university longer than ne but because he was on a different scheme it was cancelled after so many years.

My tombstone will read "and she still never paid off that stupid loan".

Absolute fucking madness. And your username 🤣

So much promo was done on student loans in the 2000s (cheapest loan ever, won’t affect your mortgage) and this is no longer the reality of the situation. And I think it’s something that hasn’t really been caught onto yet.

I would pay their fees. The reality is that otherwise your DC will likely be losing 9% of their income for the rest of their working life with little hope of paying it off quickly or at all. Not so bad if they are likely to remain on a fairly low income but as soon as you get to a decent wage you will be paying £100s a month without a hope of the payment stopping. My DH has been paying £600 a month and yes he earns well but we still have mortgages and bills to pay too.

Save it for a house deposit. DD1 is a high rate tax payer, but by taking the loan and keeping her savings she recently bought a flat in London. Do not underestimate the craziness of the rental market. A thousand a month down the drain, lazy landlords, section 22's, rent being increased every year, having to queue to get flats....

I put money into an ISA for my kids when they went to uni and said they could use it an any point they needed it. Nether if them touched it but both needed a car when they had to commute to start work after graduating and that's when they first used the money for anything. The rest eventually went into house deposits. They don't complain or even mention anything about the repayments automatically taken from their salaries - well - it never comes up in conversation anyway. I wouldn't pay the tuition costs - surely you've heard the expression "cash is king" - it gives you some power when you really need it so hang on to it.

Given that the interest rate is now so high, and the term so long, most graduates will end up paying back several times the loan. It's not a 'cheap' loan anymore under the new terms.

It also does effect mortgage affordability, as they calculate it as part of your income and expenditure.

I paid off my loan through a voluntary early repayment, and I will pay my children's up front, should they decide to go to university (I don't think it's the best path for many youngsters)

It is also worth mentioning that savings over a certain level will bar access to a lot of benefits, should your children ever find themselves in need. None of us can say for certain what the future will hold.

Exactly. Bad housing/annoying neighbours/stress of moving has caused me far more "psychological stress" than my student loan ever has! The vast majority of their peers will have student loans so they aren't at a disadvantage, whereas if lots of their friends start getting money to help with deposits they might feel hard done by.

Also what if they drop out or never earn enough to pay back their loans? Then you will have lost out by paying upfront. There's always the possibility the government will forgive/wipe out some student loan debt at well - they took £1000 off both of my siblings for some reason.

Amount equivalent to over 2 years worth of tuition fees.... So they're going to have to take a loan for the remaining year/years? They'll end up with no savings and a student loan. What's the advantage of that?

Although it's called a "loan" it is structured effectively as a graduate tax that those who fully self-fund can opt out of.

I don't think there's much "psychological stress" and doesn't make much difference to most young people. Psychologically it feels more like a tax than a loan which is half way between the basic income tax that everyone pays and the higher rate tax that the higher earners pay.

On a salary of £39k ish (uk average salary) with no student loan the take-home each month is £ 2,524.10 per month after Tax, NI and a 5% pension contribution but no Student Loan repayment whereas with a Student Loan the same person would take home £ 2,419.10 per month - a £105 difference really isn't that much whereas the difference between the rent that someone with no access to the housing ladder has to pay vs being able to get a mortgage for the same level of housing will often be several hundred pounds - but if this Trust Fund is only enough for a couple of years and any loan is needed, they will still pay that same £105 per month whether the debt is £10,000 or £70,000 so unless you can top up the Trust Fund to pay for full living expenses and fees throughout the course, there's not much benefit.

It does make a bit more of a difference with a salary of eg £90,000 where Take Home without a loan would be £ 5,119.71 and with a loan would be £ 4,632.71 so that's a difference of nearly £500 but how confident are you that your DC will be earning at that kind of level? (top 5% of earners) meanwhile if one of them ends up not earning much (eg if they are a SAHP or work part-time due to childcare) they would pay very little or nothing, and you can't be sure.

If you have enough spare capital yourself that you can cover the shortfall between the Trust Fund and the full cost, and if you are reasonably confident that your DC is heading for a top-5% career then my advice would be that you start off with taking the loan but wotj you paying the accruing interest off right from the start (interest is charged from Day 1 of the course so a lot accumulates during the years of study) so that the debt doesn't grow. Do that until 3 years after graduation by which time it should be clear whether they are being successful and are genuinely on their way to stellar salaries or whether they are closer to average. If the former, then releasing the trust fund at that point and paying off the remaining debt would be sensible. If the latter then using the Trust Fund for a house deposit and paying the repayments as a graduate tax will save more money.

I think people have continued to be sold ‘it’s the cheapest debt you’ll ever have’ line, long after this was the case (ie post 2012). And that’s because it was clueless people (teachers, parents) selling into clueless school children - people like Martin Lewis have a lot to answer for.

8% a year interest compounded is a lot…! And RPI + 3% as an interest rate… why? This is far higher than inflation or the bank base rate.

If you earn a medium to high salary… you’re going to be paying back a lot. Hundreds a month for your entire career - and still probably never paying it off.

The only perk is you can’t default on it by failing to pay it back, and that you need to be earning to be expected to repay.

Actually find yourself in consistent and decently paid employment and it’s a millstone IMO.

It’s going to be the next great scandal.

“I don't think there's much "psychological stress" and doesn't make much difference to most young people. Psychologically it feels more like a tax than a loan which is half way between the basic income tax that everyone pays and the higher rate tax that the higher earners pay.“

I had a plan 1loan (so paid off fairly quickly), but remember hitting the 51% tax rate as a result of it and feeling hugely demotivated by it.

Some of these students will have that >50% rate for most of their careers and still not pay it off.

YANBU
I ignored his advice as DC doing medicine.

Notwithstanding the doctor employment problems recently, Dr’s usually earn well but not megabucks.

Low earners never pay it off. High earners pay it off fast (esp as less time for interest to accrue)

The earnings of doctors is such that they will pay it off but over many years so their interest payments are v high.

I worked it out that for about 50k of loan, she’d end up repaying 250k

Also, interest starts from day one of the loan, so there's a considerable amount of interest compounded by the time they leave uni

Obviously it depends as
the majority of people can afford to pay fees and expenses.

But wouldn't it make more sense for them to use the money for a deposit on a home? They might otherwise never be able to save enough for a deposit
They will only start paying the loan off when they earn a certain amount. And they pay it off gradually

DC1 will be going to university in 18 months with DC2 hopefully following 3 years after that. They will have similar amounts in their trust funds to the OP - able to fund tuition fees for 2+ of the years. At a stretch and assuming nothing happens to our jobs, DH and I could stretch to funding them £10k a year living costs and that final year's fees. (We are fortunate that there is a 3 year gap). But that would leave them with no savings and us with a smaller cushion. Plus if one of us hits redundancy or illness could scupper those plans and see them having to take out loans anyway.

I think it is madness - expecting them to be paying that additional 9% through the expensive childcare years, through to the age when they may be thinking about retirement. The people on Plan 2 at my workplace struggle to save into pensions because of the repayments they are making - so they won't have sufficient pensions to retire on. The whole thing is just pushing the financial crisis down the line so someone else will have to deal with it when it implodes.

University funding needs a complete overhaul. I have tried to encourage my DC towards degree apprenticeships.

Unless you can cover the entire thing, all 3 years, then there's no point as they'll still have a loan and the interest will grow and grow

Well dang. Ignore my advice then!

My student loan amount is between them and God! I haven't checked it in the 10 years I've been graduated, it's not like in the US, where they harass and threaten you to repay immediately