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.

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

So what?
After 30 years it gets wiped out
So if you live til 60+ you fine.
Your tombstone will read
She got a degree and used it (hopefully)

There are a million schemes.

My husband is 2 years older than me so got an earlier scheme. His got cancelled last year and he never paid a penny.

Mine gets paid as a % of my earnings regardless of what I earn. So I started paying it immediately on leaving university and will pay it until I retire. I'm in my 40s so it's more likely to be closer to 70 than 60.

So 50 years of paying sonething that just services the interest on my average wage.

No one ever mentions that paying your son/daughter’s uni costs is something that you are doing specifically for them. It will never end up in a marital pot of money and subject to a divorce settlement.

Interest is interest - you have to pay it back and it continues to accumulate until you've paid it back.

If you have the cash, it only makes sense to take out the student loan if you can earn more interest on your cash than you are paying on the student loan or you use the money on eg a mortgage in order to get this at a lower rate due to you having higher deposit.

Well that’s good news! But yes on my last statement it was 6.5%

To compare.. my mortgage is 0.9%! Shortly will go up!

But the reason it’s an awful loan is all in the detail. The detail which they are able to change at any time. Which is ridiculous. How is that legal?!

My current biggest gripe is because I am self employed and they calculate student loan after I do my self assessment. Is that the money only gets taken after the interest has compound accrued.

You would think ahh, well I will just pay in advance monthly a certain amount. But no - you can do this, but they will take that as voluntary and will still demand the payment at the end.

So it’s incredibly unfavourable to business owners / self employed.

Honestly I do think it will get challenged in court and cancelled as illegal at some stage. There’s no way you can say getting 17yo to sign up to this is legal. And basically making it harder to pay off every time your circumstances change to make it more likely you will pay it - ie. Earning more, setting up a business etc.

Has anyone here ever considered paying the fees as an interest free loan to their DC? Maybe there's something I'm missing but I wonder if it would at least nullify the uncertainty about future rate increases.

My parents set a trust fund up for both of my children the size of a house deposit. DD is off to uni in september and she could blow the whole lot there and be debt free rather than a house deposit but I think it's better to wait and see what she what her next move is before throwing her eggs in one basket.
Saving for a substantial deposit on a house is also not easy.

Why would you?
If dc dont earn enough they wont pay hmrc.
If it gets to 30 years the remainder is written off.
But will always be in debt to you.

Of course if you have enough to loan for uni and give them 50 to 100 k house deposit then great go for it.
At 30 they will likely want a house deposit more than anything

Honestly what is the point of incurring this debt (ultimately payable by the tax payer) if you’re only going to earn a bit more than NMW (which keeps increasing year on year)?

If your child is a striver, and plans to earn a higher salary, surely they’re better off having the fees paid by parents.

Has anyone worked out how much has been paid back by someone earning over £50k (which isn’t that high) compared to what they paid for their degree and maintenance element.

But what amount in interest has been added to the loan over the (average length of a degree) 3 years? I’d be interested to know the answer to this as I don’t know.

It would just be inflation, RPI, under Plan 5 loans.

So the real value of the loan stays the same. I wish my salary had been similarly protected against inflation over the last decade.

I regret not using my savings. It’s 20 years since I graduated, I’ve been paying it back for the last 18 of those years and I still owe what I borrowed.

I’m in a position that I will pay it off due to earnings rather than have it written off. I’ll have been paying it for 37 years and will have paid back more than double what I borrowed. I’m plan 1 so pretty low interest compared to my mortgage rate - think mortgage is about 4.5 and my student loan is about 3.5 ish (or was last time I looked). My post grad loan is 6.2 (regret taking a student loan for this one)

@Notmycircusnotmyotter More recent plans like plan 5 for undergraduate student loans have seen interest rates above 7 or 8%. It was over 13% at one point. Compared to a mortgage then it’s much higher.

I’m with you. Partly because I’m a Dave Ramsey listener. Partly because I don’t think a lot of degrees are worth the money and asking yourself would I pay cash for that is a good market. It worries me the government can change the terms at any time. I

I’ve never actually eaten enough to repay my student loan. I get refunded each year when my P60 goes through as they air it when I get my bonuses. Mine gets written off in about 9 years..

But you end up paying way more than the loan about as you we paying an ever increasing interest only. It’s a tax you continue to pay until close to retirement

It all depends on potential earnings. If the person is likely to be an above average earner, then they'll be paying it off for decades and the interest will soon double (or even treble) the capital borrowed. If they're going to be a very high earner, they'll pay it off sooner, so interest will be less. If they're going to be a lower earner, they'll only be paying low amounts so the interest doesn't matter as they'll not even pay off the capital. You need to do a model on a spreadsheet to get the "right" answer. I've done it loads of times and those on average lifetime earnings of £50-£100k are absolutely hammered with the interest, whereas those earning a lot more or a lot less tend to benefit from the loan due to not "paying" anywhere near as much interest.

"So what"??

The point is that they may have paid tens of thousands in interest even if not "fully" paid, despite maybe having paid off the initial capital borrowed years or decades ago. The interest is an absolute killer. Martin Lewis's figures re loans not paid off sound good, but the reality is that huge numbers of people have long since paid off the capital, but still having to repay the ever increasing interest, but are still included in the statistics for "loans written off" - it certainly doesn't mean just people who've paid nothing off or only paid off capital.

Not true - junior doctors start on 38k a year, which can be as high as 50k with locum shifts that most do. Investment banking first year analysts, City law firm first year hires, people in consultancy - all sometimes earn >100k starting and even if outside London, well over 50k within 5 years.
Median graduate salaries are 50k within 3 years of graduating and some sectors (tech, consultancy, banking, City Law) outstrip that

This generation may well be more entrepeneurial - again high-risk, high-reward - so may well deliver the growth in economy with more earning higher earlier in their careers.

So you pay a graduate tax til you are 55 or 60 .
No worries.
It will only be a % of income

It is true.

The average graduate salary in the UK is 28k, according to the ONS. On plan 5 that is a repayment of £23 a month. Hardly £300, is it? The number of students coming straight out of university and repaying £300 in loans is vanishingly small.

That also gives you a take-home of less than £2k a month, hardly a great amount of money on which to pay rent and expenses and try to save enough for a deposit. That 20k in savings is the difference between being able to get on the property market reasonably quickly and perhaps never being able to do so.

If it's never paid off - which is now the vast majority of cases - the amount of interest paid on it is completely irrelevant.

It's a graduate tax, not a loan. The sooner it's properly recognised as such by the government, the better.

Supposing your DC has £30K in their CTF to pay for 3 years' tuition fees. Wouldn't it be better to pay for those fees with that cash, without taking a loan, and not pay £30K+significant interest over the next few decades?

Why pay interest unnecessarily???

You need to rid yourself of the idea of it being a debt. It doesn’t behave like any other debt. The interest is randomly decided by the government and also it doesn’t count against your credit rating. It’s essentially a graduate tax, which will either go on for their whole lives if they earn low incomes as grads or it will go away if they earn larger incomes and can clear it down quickly

The interest isn't irrelevant. It's what means most of the write offs are due to the interest and that the graduates will have paid off not only the capital but most of the interest too. In absolute terms, often tens of thousands of pounds that has been paid back, often far more than the capital originally borrowed yet still included in the flawed statistics of write offs making it look as if students have benefitted when in fact they've often paid a shed load of interest AND the capital, and it's still not fully paid off.

But if they never earn enough they wont pay.
If they take unpaid leave from work they wont pay during that time.
If they get sick or disabled and earnings fall they wont pay.
It is not like a mortgage which you have to pay whatever
It is best seen as a tax paid when earnings are high enough.