Uni loan

[Flimingo]

I m confuse to decide if I should pay uni fee for my son who is starting in September or should he take loan?
not sure how to prioritise my money?
my DD will also be applying uni after 2 years.My take home after taxes is 10K/month.
any advise?

Up to you, but remember that the student loan is an odd type of loan. It won't show up on any credit searches. The amount your son will repay depends on how much he is earning, not the size of the loan, and 30 years after he graduates the loan will be written off, even if he hasn't paid a single penny. It is, to all intents and purposes, a graduate tax with a lifetime limit on how much you pay.

Your son will be entitled to the full loan for tuition fees. However, given your income, he will only get 50% of the maximum loan for living costs. You will be expected to top that up.

It depends on whether you are sure your child is on a path to a high income.

If there's any chance he going to end upin a more moderately paid career, with earnings less than £50k per year say, then you would be throwing money away topay upfront and would be better off gifting him the repayments money he'll owe the SLC each month. e.g. on £35,000 annual income for 40 years, repayments would be £900 per year so he'd repay £36,000.

Nb there is no point at all paying fees if you aren't also 100% funding living costs too, as his repayments are the same no matter how much he borrows

The new loans are 40 years, so many more will pay them off or a much larger chumk of them.

Thanks for responses.Really appreciate.
its that “parent guilt” that I can not get rid off that my son will have a debt to pay!!!!!

He is going in physics BSc with further career either in Cosmology or particle physics(industry or academic)

If you earn over a certain amount, students do not get the full loan and parents are expected to pay towards living costs.

There is a whole thread on whether parents should pay the full tuition fees and living costs for their children.

https://www.mumsnet.com/talk/higher_education/5203216-is-it-worth-taking-student-loan-if-you-dont-need-to?page=11

Martin Lewis suggests that if you are not sure whether your DC is going to earn enough to pay back the student loan in 40 years then it is not worth paying for it up front e.g. if your son does a PhD and doesn't earn over £25,000 for a while.

However, I have read that the debt increases very quickly and that it can triple over the 40 years so individuals will end up paying much more than the original loan.

This makes me worry and I think I don't really want my son starting his career with debt.

The amount you pay back depends on how much you earn, so if you start earning more money e.g. £50,000 as you reach 30, you will be paying much more off.

• Plan 5 Threshold: Under Plan 5, the repayment threshold is £25,000 per year.
• Income Over Threshold: With an income of £50,000, you are earning £25,000 above the threshold (£50,000 - £25,000 = £25,000).
• Repayment Calculation: You repay 9% of the amount over the threshold, which is 9% of £25,000.
• Annual Repayment: 9% of £25,000 = £2,250.
• Monthly Repayment: £2,250 / 12 months = £187.50.

Under plan 5 grads will be paying back over 40 years before write off not 30 and the threshold is lower. Therefore a for greater number will indeed be paying it back in full. So higher earners will pay it off quicker and lower still wrote off but those in the middle will end up paying far more interest over the term.

Although it doesn't count as capital debit for the purpose of credit, student loan repayments are indeed used in mortgage affordability calculations, which point used to not be mentioned by MSE and is now referred to rather briefly.

@Flimingo if you can afford to pay and also potentially provide your children with house deposits (if so) inclined and you feel you have adequately provided for your own retirement it could well be worth doing.

@Flimingo We decided to pay our children's fees rather than them taking the loan because:
1.They are both working towards relatively well paid professions, and are both male, so less likely to take long career breaks in future. This means they are unlikely to have loans written off.
2.We could afford to pay fees and still put money towards house deposits.
3.As we own a home in London our estate is likely to be liable for inheritance tax in future, so we'd rather hand money over sooner rather than later.

We didn’t pay for DDs up front. They took loans. One doesn’t earn that much and the other has paid hers off. Higher earners will pay far less with the latest loans than lower earners will who pay over 40 years. If the job is low paid (no idea about academia!) then take the loan. If he strikes gold and decides to be a city banker, pay it off.

It also depends if you have a decent pension, savings and plenty of money available for housing after he graduates. If you have plenty, pay the fees. If paying fees means you are short of pension and savings, plan carefully.

I have been researching the same and also read up Martin Lewis’s advise. We can afford to pay the fees upfront, but if we were to instead invest the same amount into pension pots the returns are better than the interest payable. I’ve worked out ‘potential earnings/repayment etc over 15 years’. It’s a very unpredictable scenario and my thoughts are to take the loan when it’s being offered and then decide at the point of job start whether to pay it off completely or let it roll on.

Given the likely taxes on pension pots going forward, would it not now be more sensible to invest in ISAs?
We read all the Martin Lewis advice but concluded that our DC would almost certainly end up paying off the full amount (plus a difficult to calculate amount of interest) so we paid the fees up front. We wanted to leave our DC in the same position we had been in when leaving University (ie no fee debt) and we also felt that there was a psychological cost to the debt which never seems to be factored in to the calculation.

If you pay it into your pension you'll be restricted on when and how you can access the money. That might work ok for you though.

I read all of Martin Lewis's info and still concluded that paying upfront was right for us. But everyone is different.

I don't know if he still has the payments calculator on his site, but I found the default assumptions it made weren't realistic. For example, its assumed wage inflation rate did not factor in promotions and moving between employers - just a steady inflation-linked rise.

All valid points and I’ve thought through these to the best I could. Pension gives me tax relief - I suppose it depends on one’s tax rate and whether the relief is worth it. Then there is the compounding growth effect of that tax relief which adds up to more than that of ISA. The taxability later is a consideration but hope to minimize that by withdrawing ar minimum thresholds.
100% agree on the psychological burden though and that’s definitely something that’s on my mind. If it feels like too much, we might repay sooner rather than later.
In any case we plan to pay uni fees - the difference is in holding it back, growing it and giving it as a bigger lump sum to DC (not from pension, but the equivalent from other investments).

not yet applied though, still thinking it through.

Yes the ML calculations are based on the line of thought that DC won’t be repaying all of the loan. That’s not likely in our case. So my assumptions are different and more based on investment growth rate versus inflation / interest rate.

it’s definitely a tricky one to work out accurately.

Yes, always worth making the most of pension tax relief - I'm doing that too, though not for paying uni fees.

Remember that you build up a bigger pension pot than you can spend in retirement it will now be added to your estate for inheritance tax purposes.

For IHT you can give money away and live 7 years. There’s lots of planning people can do. Theres also no dc at university that’s guaranteed a high paying job. Health and other factors come into play. I’ve seen dc starting university wanting that high powered city job but deciding they want to do research at university and earn £35,000 at 30. I tend to think taking the loan and paying it off if the great job materializes.

My daughter took max loans (I’m a single parent so she gets max) she has saved every penny for down payment for mortgage and it is cheaper and more advantageous to do this. She’s on track to be able to comfortably buy a home with first job. It’s a zero problem loan. Unless you’re loaded. Take the loan but do (as others suggest ) read martin money saver

Yes, this is Martin Lewis's advice, and I think it is good high level advice, but individual parents know their own children best, so can make a more nuanced judgement about the likelihood of them getting the good job.

There was an article in the FT in Sept 2022 ("Should you pay your child’s university fees up front?") which concluded that paying up front was a good idea (with caveats), if affordable. However, FT readers may have more confidence in their offsprings' future prospects than the wider population.

You will need to support him anyway as rent is often higher than the loan and he needs to eat, travel etc

i think it’s good for them to ‘value’ the course so I’d suggest he take a loan to pay for the course and you help him with living costs.

@Newgirls Parents are exported to contribute if dc don’t get the full loan. All rents are more than the minimum loan. All rents are not more than the maximum full loan.

I ageee about parents thinking dc will walk into that high flying career @sonywalkman but not all make it. They might be all sorts of reasons why it doesn’t materialise. People change their minds about careers and get comfortable in their university city where there are no very high paying jobs.

My DD took the loans then deposited into high interest account. At end of degree she drew out money and repaid the loans. This was many years ago before interest rates were put up so much.