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Further education

You'll find discussions about A Levels and universities on our Further Education forum.

Original poster

DS has inheritance & could cover uni fees. Why should he still get a loan?

94 replies

SadAboutTheBoy · 19/04/2018 11:13

DS is very fortunate and has a lump sum of inheritance saved/ invested which could more than cover his uni fees and living expenses over the next 3 years. (He knows he is very very lucky in this respect.)

He is going into a field which is likely to be high paid (IT/computing) and all the online calculators suggest that he probably WOULD end up paying all his loan back.

At the moment his savings/investments earn probably a little less than 6% a year, due to the balance of savings accounts and ISAs etc.

In my mind, it is madness to borrow money at 6% and be earning less than that from your savings? But people who are aware of his situation keep saying he should still apply for a student loan (but seem unable to explain to me why...)

Even if he was to pay them off as soon as he graduated, it would still have cost him 6% p.a. in accrued interest?

Using his inheritance wouldn't totally deplete his savings either. He'd still have a lump sum left if he wanted e.g. a house deposit in the future.

Am I missing something here?

OP posts:
blueskypink · 22/04/2018 07:46

. If you start on a salary of 55k, which is a typical graduate starting salary in London,
*
Jeanne* - you are JOKING right?!!!!!!!!!!!!!!!!

Bananamanfan · 22/04/2018 07:51

No brainer for me too; take the loan, use savings for a house deposit.

freegazelle · 22/04/2018 07:53

Oh and from those I know who went to Oxbridge (now in mid-late twenties) - one is a paralegal, after a law conversion degree and many internships. I'm sure she doesn't get over 35,000. A couple now doing phds - so think 16,000 a year. A couple of freelance journalists - so think 25,000 a year, and that came after a year of internships.

KeneftYakimoski · 22/04/2018 07:58

55k is the highest graduate starting salary I have seen in a large cohort of top quality STEM. It is the top centile, not typical at all.

freegazelle · 22/04/2018 08:03

Ah I just saw he was doing computing, where i think salaries are much higher, but still not 55,000! But like other posters said, still wouldn't bank on anything.

AJPTaylor · 22/04/2018 08:03

You are in an unusual scenario and it makes sense to do as you suggest.
Most people it wouldnt. My dd it didnt. But in your ds position it makes sense. The critical issue is potential earnings. If he is likely to be a high earner pay now! With dd she is likely to be a middle earner and if you take out a couple of years to have kids and factor in some years part time its unlikely a dent would be made in loan, so interest not worth worrying about.

KeneftYakimoski · 22/04/2018 08:13

The typical salary in computing is not “much higher”. Some salaries in computing (high end jobs in merchant banks, often taken by people with maths or physics degrees, then computer science from the upper end of the Russell Group), are). And even then a small minority. Your IT degree from a post-92? Not so much. Employable, yes. But hardly a road to riches beyond the dreams of avarice.

Daisymay2 · 22/04/2018 08:24

You could do the half and half as we did. They borrow the fee but we funded living costs.
He has his £5k from rent as a starter. We have funded both of ours like this but paid the fees on a Masters. DS rent plus bills is £5k and he gets £50 /week in term time. He works in the holidays and also works through Unitemps when he can.
It may be better to keep the cash in case he wants to do a post grad.

freegazelle · 22/04/2018 08:27

@Keneft

I thought its higher than the non-STEM graduates i was talking about above, but ok, don't know much about these fields.

Generally i get frustrated with mnetters who are expecting their children to walk into jobs from graduation. If he has capital to support him afterwards than he's incredibly lucky and it would be insane to blow it all on uni when he could take out a government loan instead.

grannycab · 22/04/2018 08:40

keep the inheritance so he has a house deposit.

KeneftYakimoski · 22/04/2018 08:43

I don’t understand the “if he is line to be a high earners pay now”. If he is a high earner at 25 he can pay the loan off if it makes sense, with much more knowledge about his prospects. The small amount of interest in the 8 years is a reasonable price for more market knowledge. Otherwise he is buying an option on his future at the price of liquidity on poor information.

MinaPaws · 22/04/2018 08:49

This is a really interesting thread. Both my DC will be in a similar position due to money left them by childless relatives.
There's some really helpful advice on here, especially points made about not having to pay it back for a while if the first few years post uni are financially rocky.

blueskypink · 22/04/2018 09:09

I also hope the op is managing her DS's expectations and not encouraging him to believe that he will walk into a highly paid job on graduation.

Original poster
SadAboutTheBoy · 22/04/2018 16:17

Just to reiterate from my opening post... even if he paid his own uni fees/ maintenance he would still have a sizeable chunk left for a deposit for a flat/ house, so he does not need to take the student loan for this purpose.

I accept that there are no guarantees that he will walk into a well-paid job, and he has no expectations either on that front. As someone else has pointed out though, the fact that he already has buy-to-let income of £5000+ per year, he would only need to earn £20,000 to reach the repayment threshold (although he could, of course, sell his share, or live in the house after graduation).

However, in answer to my original OP, I think Keneft probably has the most convincing answer:
The small amount of interest in the 8 [3 ??]years is a reasonable price for more market knowledge."
If he DOES take the loans this will be why... because so much could change over the next few years:

  • interest rates will likely rise
  • the SLC 'book' could be sold and T&Cs changed
  • a future (Labour) govt could write off student loans (unlikely, I know, but...)

If he keeps his inheritance invested and maintains the return at c. 6%, then the 3 year impact of the loan would be relatively cost neutral.

Do they reapply for loans each year of a course, or apply for the whole 3 years at the beginning?

OP posts:
KirbyKane · 22/04/2018 16:21

As someone who is currently paying off a student loan I think he would be mad not to get one and leave his savings in an ISA! It's the cheapest loan he will ever have and he will barely notice it going out of his salary when he starts working. He can choose to pay it off early whenever he likes so I say he should get the loan.

BubblesBuddy · 22/04/2018 16:23

My DD has a highly paid job but is self employed. Parents can gift children money every year free from IH when they die. They can gift larger sums too, as we have done, as long as it’s 7 years before death. Hopefully that’s not an issue! There are all sorts of trusts that can be set up too.

We didn’t know DD would be successful in her chosen career, or even be able to pursue it, as its highly competitive. She wasn’t totally sure what she wanted to do when she took out the undergrad loan. It may well be better to start paying it off but we though we need a few years to look at it. In the meantime there’s £20,000 stamp duty to cough up!

Flutist · 22/04/2018 16:37

Like the OP's son I thought computing was a well paid field so I did a computing degree and worked in computing for over a decade. Well paid jobs aren't as easy to come by as people think, and further training and certification is usually required to earn the big bucks. I'd recommend taking the loan and banking the cash then waiting to see what happens, rather than blindly assuming that computing graduates are well paid.

Original poster
SadAboutTheBoy · 22/04/2018 16:41

Sorry, but saying 'it's the cheapest loan you'll ever get' is simply not true! This might have been true under 'old' student loans at 3%, but the current interest rate on a student loan is 6.3% and this begins to compound from the minute you get the cash!
By comparison, 10 year mortgages are about 3-4% and Tesco offers personal loans for about 3%.

I really worry when people bandy this stuff about! It is only the cheapest loan you'll ever get if you don't end up paying it off. Those who DO (or almost) pay it off may end up paying up to 3 times the value of the loan in interest payments! Sorry, but that's not cheap...

Kirby - a cash ISA is poor advice I'm afraid too, as very few pay more than about 1.5%. A S&S one is potentially better, but not so liquid. As a non-tax payer, my son would do better in high interest current accounts earning 3-5% and with his buy-to-let (4% income p.a. + 5% capital value growth).

OP posts:
titchy · 22/04/2018 16:44

By comparison, 10 year mortgages are about 3-4% and Tesco offers personal loans for about 3%.

How many unemployed 18 year olds can access those sorts of rates, safe in the knowledge that if they're in low paid jobs they won't have to pay a penny.Hmm

Battleax · 22/04/2018 16:47

I’d be looking very carefully at where he is likely to want to buy post-graduation, what house prices and interest rates will do post-Brexit and what, say, the difference between 60% LTV and 30% LTV (or whatever the likely LTVs) could have on his costs and aspirations. There’s an opportunity cost to look at.

Allthebestnamesareused · 22/04/2018 17:00

My son took the loan. We had assumed thata he would possibly not earn enough due to all the doom mongering on here. 3 years after graduating he is paying £280 a month off his loan a month. This will happen for 30 years because at that rate the interest will still keep on accruing and adding to the loan. That is higher than car loans etc. Yes a "graduate tax" but if a government tried to increase basic rate income tax by 9% then there woukd be outcry. In your situation I tell DS to seld fund.

We will now give our DS an even bigger deposit than we had anticipated to help equalise the situation

Allthebestnamesareused · 22/04/2018 17:02

Excuse all.my typos which I won't correct other than *self fund

MrsLemonadeBrain · 22/04/2018 17:18

I don’t know what your ds’s exact situation is. But I too had a lump sum inheritance.
I took 4 years of finance (first year to have 9000 fees) and used some of my inheritance for a car, driving lessons, insurance on car, my rent.
I now don’t see my student loan leaving, have a decent job and have £20k as a deposit on my first home.
It’s getting increasingly hard to get on the housing ladder and I think it’s only going to get worse.

jeanne16 · 22/04/2018 17:18

I will stand partially corrected on my comment that 55k is a typical graduate starting salary. It is the starting salary for graduates in banking and law in London. However I do realise that lots of people struggle to get these graduate jobs.

However for those that are aiming for these types of jobs and have a realistic chance of getting them (studying Economics, Maths, Engineering etc from one of the top unis), then if you do the calculations, they are much better off not taking out a loan.

titchy · 22/04/2018 17:46

However I do realise that lots of people struggle to get these graduate jobs.

By 'lots' you actually mean 95%.

Hope that helps.Hmm

Not a particularly accurate or useful post.

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