If you can pay uni fees.. Wwyd

[theredjellybean]

My dd and dsd arw both hopefully off to uni in September this year. We can afford to pay their fees for them (and have done this for older siblings). But someone recently suggested we put the equivalent money into isa accounts, and got the girls to take out the loans, when they reached the point of having to start paying it back we could give them the lump sum to pay it off.
I would have thought any gains we make would be outweighed by the interest on the student loans.
Has anyone else taken this tack?

It is unpopular here on MN but if you can pay I think you should (we do). Returns on cash ISA’s are negligible compared to the high (and increasing) interest rates on student loans. I also take the view that to apply for and then administer loans costs the taxpayer and why would you “waste” public funds if you don’t need to?

Have a look at the Martin Lewis information on student loans/fees. It is really informative about how they work, long term and then go from there.
Gist of it iirc, is that these loans are not really designed to be repaid in full and unless you are a really high earner, you won't be disadvantaged by taking out the loan.

@Iwannasee that’s all well and good but the money loaned is money out of the “pot” that I would (and do) feel bad about using when we can easily afford the tuition fees for our children. I know it’s going to be a relatively low number of parents who can do this but even so it’s an important principle for us

That's your prerogative home. I see it more as graduates tend to earn more so pay more tax and therefore contribute to the pot in that way.
I also believe that charging tuition fees is morally wrong. Those capable of studying for a degree should be supported by the state. The country benefits in the end.

In an ideal world I’d agree but pragmatically funding higher education is in my view a “nice to have” item that simply isn’t affordable

Student loans are effectively supposed to be interest free (linked to inflation) and only paid back if you earn a decent salary. Many people never pay them off. By paying for education in cash, you're incurring the opportunity cost of not having the money available for other uses e.g. buying a house.

What's better: getting an interest free student loan and using your cash for a mortgage, or paying for your education in cash and having to pay interest on a bigger mortgage (or possibly even being unable to buy a house at all)? Obviously the former makes more financial sense!

I'd take out the loans and keep the money you have for a time when your children need financial help not readily available. The loans work effectively as a graduate tax.

Take the loans and give them that money down the line when they want to buy a house, or when they can decide if it’s better for them to have all the cash and only pay a small amount per month for the loan. It’ll just be another deduction off their pay, whereas not many people are lucky enough to have a lump sum of money. It would take them a long time to save as much and I don’t think they’ll feel any better off than peers who took the loans of you do pay for uni.

Student loans most definitely not interest free

www.slc.co.uk/students-and-customers/loan-repayment/interest-rates.aspx

Bella. Do you realise that student loans incur a 6.1% interest rate at the moment. Why do so many people think they are interest free?

You'd have to be mad. Primarily, because
a) many people will never finish paying off the capital; anything they still owe after 30 years is wiped off. If my quick sums are correct, assuming a £50,000 loan, they would have to average a £43,518 salary per year for 30 years. The UK median salary is £23,500, and as there are almost no graduate jobs that start on £43k, they're going to have to earn substantially more than that by the end. Note I haven't actually accounted for interest in this figure; if the earnings are any lower than this level they'll never even start paying off the interest, so it's irrelevant.
b) they'd be better off having the money as a lump sum nest egg / rainy day fund / money towards house deposit. Better to have the money liquid and available.

www.moneysavingexpert.com/students/should-i-get-student-loan
www.moneysavingexpert.com/students/student-loans-tuition-fees-changes
www.moneysavingexpert.com/students/repay-post-2012-student-loan

@jeanne16 - until a few years ago the interest rate was pegged to inflation (not inflation + x%) so it was pretty much interest free. Many people haven't noticed that it's changed, and because it's (a) so complicated, (b) irrelevant to all but the highest earners, it's not publicised as part of the basic package of info on student loans

My dd is going to med school so most definitely will be paying hers off, but dsd doing 'media and hr' probably not.
The moral point about not taking from the 'pot' if you do not have to fails me, I am a high rate tax payer, have no tax free allowance and feel frankly I contribute plenty already.
Interesting points every one, thank you, I will go and read the Martin Lewis stuff

The advice is always not to. I'm not in the enviable position to have been able to do it but I still wouldn't. You are basically just giving the government thousands. Student debt will be wiped eventually if you haven't paid it off. I'm sure you pay lots in tax, I wouldn't feel guilty. My old boss was very wealthy and his three children had huge student loans!

Irrespective of whether or not you can pay them upfront (and it sounds like there may be good financial reason not to), its probably not a bad message to the dc that their education carries a cost (to them) as this may help to focus their attention on their studies?

I'm all for helping them out with deposits and first house purchases and bunging them some cash for living expenses as and when needed, so that they don't have to spend too many of their undergraduate years working alongside studying.

In an ideal world I’d agree but pragmatically funding higher education is in my view a “nice to have” item that simply isn’t affordable

.. how would you like your doctors, dentists trained then? Nurses ? teachers?

would you like to fly in a plane or drive over a bridge that has been designed by a GCSE student ... or a degree qualified engineer?

@eve you twist my words. What I meant was state funded higher education. I benefited from that 30 plus years ago and am very grateful. However today things are different and I think a graduate tax aka loan system is the best way to ensure sustainable high quality higher education for all those doctors and bridge engineers. I choose not to take the funds available for my DC’s for reasons previously stated. But for the vast majority of others who cannot, the loan system seems best in the absence of sufficient public funds to cover the cost.

Hope that makes it clear!

@theredjellybean yes we contribute vast amounts to the “pot” but feel
This should be used to help those that are less fortunate /maintain infrastructure etc rather than seeing it as a personal bank account. We don’t need to access public funds for educating our children so we don’t.

Oh no don't do that.

Speak to any decent financial advisor and they'll advise you against it.

Of course any Financial advisor will tell you not to pay fees upfront. They want you to invest any money you have.

You really need to try to work out what sort of job your DC will get. We paid for our DD and it was the right decision as she has a well paid job in finance. She would be paying a lot back every month while incurring 6.1% interest on the rest of the loan. Instead she is putting this money away toward a mortgage deposit. She is earning a measly 1% on cash deposits!

Also everyone keeps saying they will never pay off the full loan. While that may be true, most people will still be paying 9% over the 21k threshold for THIRTY years. How is that ok? Wait until inflation erodes the 21k.

I wonder How will it affect graduates ability to get a mortgage? Will banks look at 40k student debt and just put it as something everyone has or will it make it harder to get a ,mortgage? The repayments are significant amounts, especially as you start to earn more.

The earning threshold isn’t that high any more, and once you hit it, you pay 10% in tax towards the repayment of the loan. That’s a hefty whack, just as you hit child-rearing years, say.

But you can’t escape that anyway, unless you have paid all their living expenses too.

But it may be better if once that 10% tax hits, they have already had a deposit for a mortgage etc.

"anything they still owe after 30 years is wiped off. "

At the moment. One point to think about is govts in 29 yrs time may change their minds about that - I haven't worked out whether that is one of the terms of the existing loans that can be changed, but if it is.... At the moment the political climate is in the direction of improving not worsening the terms of student loans - but things can change a lot over 30 yrs.

I don't think it is an easy decision. As pp say, future earnings will influence whether it's better to have the loan or not. Incidentally if dd is doing medicine she won't necessarily pay it off, because the loan will be pretty large, especially once you add the maintenance loan - if she decides to do p-t for instance she might not? (haven't worked it out though - i'm not sure what p-t earnings would be). It is difficult to know what the most financially advantageous route is. But don't assume the loans are! Even if you decide to take them and then review the situation and pay them off on graduation, by then you have clocked up interest at RPI + 3 % points per year.

Is it compounded?

On the other hand suppose you don't take the loan and a future government decides to write them off, or write them off in part? Unlikely I know (the cost would be hefty) but who knows these days?

As for mortgages, i think (again, don't know!) that some lenders have said they don't treat it as a debt but do take into account the repayments when assessing affordability. Maybe recent borrowers can confirm/deny? Though again, a lot can change in 10-15 yrs in lending criteria. Without that crystal ball, if you can afford it it may really just be a matter of personal preference!