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.

The average "Graduate" salary may be only 28k, but most will rise quickly and substantially as they gain experience in their chosen profession, get promotions, take professional exams, etc. My son started 2 years ago on "only" £30k but he's now on £50k plus bonuses. One of his friends who is a teacher started on less than £30k but is now mid 30s, again after only two years. Starting salaries don't mean much. It's the acceleration in salaries/income that matters which is often quite rapid in the first few years.

Same.

We could afford it but I'll probably be topping up my children's ISAs each year instead to put towards a house deposit. I went to uni in the 00s and still haven't paid my ~£15k loan off, mainly due to going part time after my children were born and having a few years' career break.

If I had a crystal ball and knew my children were going to be high earners, not go part time, not become too unwell to work etc then I might consider it.

And I am not sure why one would 'loan or pay' upwards of £60k over 3 years to go to university and plan that the outcome will br £30k annual salary per year ad infinitum. For most people, going to university is about increasing economic potential. Whilst it does not always happen and field matters - to suggest to young ones that 'you will likely never pay it off anyway. The chances of earning 50-70k within 5 years of graduating is vanishingly rare' is wild to me.
I guess best to advice based on your aspiration for your children and what you have raised them to reach for

Plan 2 is the one that gets all the heat. Interest rate rises from RPI to RPI+3% as earnings rise between 28k and 51k. So 3.2% to 6.2%. That means a bunch of people are paying a lot of interest but not earning enough to put a dent in it.* Plan 2 was up to 2023. The new, Plan 5 loans are just RPI.

So yes, I'd say the new terms are still pretty favourable as far as loans go. More up for discussion is how much we think students should be paying in the first place.

*I do have sympathy here, especially given the huge starting debts due to current fee levels. But I think people who claim they are standing still sometimes forget that inflation is eroding the amount owed. They are really only paying 3% over inflation. e.g. if you happen to be paying off just the interest in pure £ terms, you are actually making some progress as £60k today is not the same as £60k debt a few years ago. But it's still a lot!

Why, because it's realistic. The actual fact of the matter is that less than 4% of the working population in the UK are on 70k+, degree or no degree.

It's not nothing to do with asperations, just facts. The average starting salary for a grad is 28k. Wage increases in recent times barely outstrip inflation. House prices are still out of the reach of most young people, especially on single salaries - even if they are decent salaries.

Financial planning based on blind hope is rarely a good idea. Yes, some students obviously will do very well for themselves, but most will find themselves a few years out of university struggling to save much, if anything, for a house deposit and without parents who can contribute in any meaningful way. Around 700,000 will not get a graduate job at all.

That's why having cash savings early in life is much more useful than student debt that most people will not even have to worry about paying off in full.

This is not correct re: only 4% earning over £70k.

I think the top 5% for 2025-6 tax year will earn six figures.

“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)?”

I think this is the key issue with the whole system tbh - a sizeable % of attendees are not very academic, and their degrees provide no evidence of helping them go on to earn high salaries. It’s an experience, mainly, it doesn’t actually improve their employability (or ability).

So those with little career ambition don’t have to pay for their education as they never earn enough - those who actually do better both pay higher tax rates and the student loan. A double whammy.

12% of male graduates and 7% of female graduates earn £51k and over by year 5 of graduating. Citation: 22-23 Graduates outcome data. I am sure that has gone up. And when you look at specific fields - the numbers are much higher (tech, banking, law, medicine). Interestingly, in certain demographics it is significantly more....wonder if aspiration indeed has something to do with it.....

Is this post just to show off?! I'm over here with my son hoping to get onto the degree apprenticeship he wants and only applying for unis he get attend from home so he doesn't have to pay for accommodation.

Don’t think of it as a debt, it’s essentially a tax. They won’t notice the deductions after. Keep the savings and take the loans.

It has to be said I would be a little concerned if my DC didn't manage to earn the threshold to pay it off. It would seem a bit like getting a degree would be a bit of a waste of time and they may as well get a job. After all, the purpose of a degree is to open more doors to better jobs, and better jobs earn more money. Doing a degree that doesn't lead you to being better off financially is a total waste of time. Unless you have a real calling like social work or midwifery or something.

And isn't it the case that whilst the interest rate is lower than if the loan was taken out another way it's still a loan, it's still interest and overall more than the original loan has to be paid back.

With all that in mind I will be paying off the whole of my DC's tuition fees and they will have money to live on as an allowance. It's a shed load cheaper than their school fees and they don't have debt around their necks at the start of their lives.

Yes it is better to keep it as a house deposit. But I find the idea of graduate tax so depressing - an extra 9% tax older people don’t have to pay, plus normal income tax payment, plus pension payment, plus massive mortgage for just a normal house, plus council tax, then one day plus childcare bills. Then add on the nuts cost of food etc

I disagree with Martin Lewis on this and always have. There seem to be more and more articles giving examples of this, particularly on Plan 2, who are saddled with repayments for years as the interest rate is so high that it is difficult to make any inroads to the capital. Plus it would worry me that it is a government loan and the government will increasingly be looking for extra ways to generate tax to fund the benefits & social care bill and so could make the terms of those loans even more punishing.
Having said that, I do think it depends what your child’s career aspiration is. I feel it is more of an issue for those who will be earning above the repayment threshold but whose repayments will only ever be servicing the interest payments.

So both my DC did 4-5 y courses and entered high earning professions. We were fortunate to be able to pay fees and maintenance. Based on the Martin Money expert calculator this makes sense as we’ve paid about £30k fees/DC and they would need to pay £98k over the lifetime of loan based on starting salary of £40k pa.

It very much depends what they are likely to earn post graduation. My husband has a medical degree and is nearly paid off, I have an arts degree and have had time out of paying for further study, living abroad, and maternity and still have a huge amount to pay, but with likely more part time employment and maternity in the future a good chunk will be written off. We were both able to save an equal deposit for our first house and now move to a bigger one despite our debts, and that has helped us more financially and lifestyle wise than having no loans would

So yeah, my point remains re: the earning power of the majority of graduates and how far off you were regarding that £300 a month repayment.

Aspiration, as you keep trying to make cheap digs about, has nothing to do with it. Everyone aspires to be loaded, but that's not actually how the economy works.

I was quoting the ONS. Depending on what metrics you use etc you will see a bit of variation.

The point being though, that a certain poster on here is clearly overestimating how much money most people and graduates in the UK earn.

What makes you think they won’t notice the deductions…?

£70k is about the top 8 - 10% this year.

Grads don’t earn much to start - but the point is that it increases!

It's difficult because the best use of the money will depend on specific circumstances, particularly how much your children will earn over their lifetimes. For a fairly high earner who will eventually pay it all off, it would be better to pay it sooner rather than later, and then start saving for a house deposit. We've taken the view that that is something for our children to decide, not us, and are waiting a little until they feel in a position to make that decision. We are starting to have the conversation now (they both graduated fairly recently) and will do some rough modelling, but I think they two of them might make different choices.

All of this ^

That money is MUCH better invested in supporting them on the housing ladder.
you can and will be needing to help with living expenses

It is more like a tax than a loan and with no baring on credit worthiness or any guarantee it will be paid in full ever, it would be the last place to invest in your child’s future.

Show off? What a mean-spirited and ridiculous comment. This is a general discussion about student loans and finance.

Another arguing that it's just a grad tax- my parents left money to DD for uni- she used some of it but I encouraged her to keep the rest to put towards a deposit on a property

We were in a similar position, but they fortunately had enough to pay the whole lot off. They are pleased they did. But I think it works best if you pay all of it off. If you pay part of it off, depending on income after uni they could end up still paying it off for years.

it’s also not the “cheapest loan they will ever have”. Higher earners will pay back double what they borrowed which isn’t cheap