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.

It is not 4% is it? The proportions are at least 3X that in 22/23. And higher proportions in those with higher aspirations. No digs - just facts. Do with it what you will.

Not for post graduate. If I had taken out a loan last year - close to 8%. I'm happy to use my savings ( interest rates perhaps 3-5% gross) and pay the uni fees when requested.

Or more like some people are content to pay £100k (loan + interest) to facilitate earning 28k per year for an extended period of time. The UK economy isnt great and wages are low but not as low as you think for graduates.

And if the wages are that low - circa £28k for most, £20k for a deposit is not going to make much of a difference to house purchase anyway because they still have to make the monthly payments and other bills. Average home price in the UK is 260-280 with average first-time buyer price over 300k in 2024. From an economic perspective, push for higher wages or faster trajectory for the young, if possible support living at home for the first few years and no unnecessary deductions. They will save up the deposit and be able to comfortably make the payments. But it is one perspective - mine. I know many people who have gotten the loans and are still paying them off in middle age with no concerns.

We were in the fortunate position of having 3 years worth of tuition fees, but instead of paying the fees my eldest DC has put that money towards the deposit on his first home. Where we are, that has meant he is easily £300 a month better off than he would have been if he was renting. For him, it has allowed him to get on the property ladder much earlier than if he was free of his student loan, but saving for a deposit.

Definitely prioritising house deposit over paying fees is a sound call.

Treat it for what it actually is, a tax on the benefit of having more education than the average person.

I said 4% over 70. You quoted 12% over 50k. So... no, it's not 3x because you're not actually comparing like for like.

You need to stop thinking of it as a debt. Most people will never pay it back, consider it to be a graduate tax. I think it would be foolish to use the money to fund their university when the time it would take them to earn and save for a deposit would be considerable!

Sure, let's say 8-10% of uk earners then. That's still a tiny amount of people, and very very very few of those will be graduates.

For most students, it's not a loan at all, it's a 9% tax on having an education.
That is how people should think about it when it comes to financial planning and whether you should use savings to pay off a student loan - which, in the vast majority of cases is absolutely the wrong thing to do.

I will do everything I can to stop my kids needing one. I have paid every month for 10 years and my balance has gone up by £7,000. It means for the first 30 years of my working life, at a time when I’m trying to build a life and raise a family, my effective tax rate is around 60%. Unless you earn over £150k you’ll never clear it. (To be clear I have no aversion to paying it back, with interest, but the current system doesn’t work).

Why do you think ‘very very very’ few of the top 10% of earners will be graduates?

An additional 9% tax rate on anything above minimum wage for 40 years is a huge thing to commit to.

I don’t think it’s anywhere near as simple as in the plan 1 loan days - the interest rates are high, the repayment term in long.

You are most likely to pay a huge sum more than you borrowed, without ever paying it off. If a high earner you may be able to pay it back - but again, due to the interest this sum may be significant.

It isn’t always, or for all plans/year groups.

It includes medical students, who earn badly these days.

Exactly - 1 in 10 graduates is not a small number! The 4% number is of all working people in the UK. Amongst graduates, the proportion more than doubles - so far more likely. Ah nevermind!
The OP has her answer - either way works but if you can afford it, worth removing the burden from your kids.

But no-one will be 'paying £100k to earn £28k'. If that's what they earn, they'll repay 9% of £3k (the amount over £25k) for 40 years, which is £10800. Most of their loan will be written off.

But as well as typical pay for the planned career, students need to look at the repayment terms for the loan plan they will be signing up for, because they're different to those previously, so just because people in their 30s or 40s have repaid a certain amount, it won't necessarily be the same for teenagers who haven't yet gone to university.

And consider whether university is right for them, instead of an apprenticeship, possibly a degree apprenticeship where their employer pays their fees and when they graduate, they'll be loan free and have a few years experience.

And consider whether university is right for them, instead of an apprenticeship, possibly a degree apprenticeship where their employer pays their fees and when they graduate, they'll be loan free and have a few years experience.
We seem incapable in this country, despite having models we could look at throughout the world, to devise a fit for purpose apprenticeship programme. They need to be offered and properly delivered by employers. At the moment, neither jobs or apprenticeships are being offered to young people by employers, because the economy is dead and they dont want to pay the wages or give up the time to help these young people. They need to provide either a day at college or the equivalent of 20% on on the job learning, so a day a week. Theres no point complaining about young people going to University when the choice is University, unemployment or competing with 200 other people for 2 apprenticeships in areas you may or may not be interested in, which dont qualify for loans, so have to be in the area you live, and you probably have to live with your parents. We also need better FE provision, for both apprenticeship and full time learning as a viable alternative for the 60% of YP who do not go to University, but the sector is chronically underfunded. Free University tuition would lead to even bigger cuts in funding to FE.

A postgraduate loan is not plan 5 though. Plan 5 is for students starting from 2023 onwards.

My understanding is that the postgraduate loan is insufficient for tuition fees and living expenses. Anyone who may do a standalone Masters would need to work if they don't have family support or savings.

Integrated Masters are undergraduate degrees so are funded the same way. It's why they are popular with STEM students.

I think there’s a lot in this. Especially with the term of the repayment increasing

it’s a cashflow issue no doubt, especially if you end up like you say, a middle earner.

all things considered unless you were able to afford to pay off the lot (remembering the tuition fee is only part of the story) and have a backup plan for things like homes, I’d have the loan.

best solution is take the loan and then see where everyone is at, say, 25. Make a call then on paying off a bulk

the poster sounds like they’ll still have a significant loan mind you either way….. in this scenario rhe bigger question seems to be whether to go In the first place, or whether to go and stay local to cut money cost

I have made this comment on similar threads before, but no one takes any notice!

If you don't think your kids will pay off the student loan in a reasonable amount of time, then it's probably not worth them going to uni.

University employee here (and mum of two grads now working and paying loans off).. definitely take the loan, treat it like a tax and keep that lump sum safe for when they need it. Much more useful. What I would say is do your research (with your kids). Uni is brilliant but not for everyone so go into it fully informed as it can be an expensive mistake. Although if they don't get the higher paying job they will hardly pay anything off so also paying it off is a sign of success in career. Good luck

Don't do anything hasty. It's not your decision to make.
Let them take out the loans. They won't pay any interest on them until they are earning well.
When they are earning well, they can then make an informed decision. Is it better to pay off the loan or use the money as a house deposit? Time will tell.

The interest payments mean they could be earning very well and still not pay it off, because they are paying it off at 9% of their salary but getting in some cases 6% interest added onto the value of their loan, compounded. They may well pay off the equivalent of the original loan but still be in huge amounts of debt. The interest on, especiallly the plan 2 loans is usury.

You pay interest on the loans from the moment they are taken out, at RPI.

You repay it from any earnings over minimum wage.

If you use it for tuition fees, make sure you have enough money that they don't need to get a maintenance loan. Really you need to pay for all of it or none of it. The interest rates are so high and accrue interest while they are still studying. So you either need them to finish uni student loan free or give them the money as a deposit on a house, do not go half way and give them some money to lower the student debt amount because they'll still have to pay back the money every month and the interest rate being linked to rpi means they'll likely be paying back until their debt is written off and your money will have been wasted