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

[SadAboutTheBoy]

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?

@sad - The whole three years at the beginning. But if you wanted to stop getting it for some reason you can.

Sorry, but even in banking and law, its a tiny tiny minority.

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.

Or, erm, aren’t going for them in the first place? (Shocker.)

Take out the loan and save the inheritance for a house deposit or similar.

Anything can happen between now and graduation.

Had I paid for my £40,000 university education that would have been £40k wasted. I had to drop out through ill health in my 4th year and have no degree to show for it.

Don't get me wrong, I'm in a low paid job that I love, I have a varied and diverse social life/hobbies etc. but I'd be kicking myself if I'd spent that sum on my education and had nothing to show for it

I love the idea that £20,000 is a great house deposit. Sadly in London that would be chicken feed.

Graduates who want a highly paid job, have to look at where the highly paid jobs actually are and what the realistic house costs are.

Also, sad, you are assuming there are no maintenance costs on the student let house or other issues that cost money such as management fees. Letting a property is never plain sailing every year. Also if you buy him out, capital appreciation for him is actually your loss. It will cost you more to buy him out. Your future investment presumably means releasing capital with possible tax implications. So before you decide what to do (although I think you already have) is the lump sum, minus the university fees and maintenance, enough for a deposit for a property in the city (London?) with the highly paid job? Is the whole of the inheritance needed for his future housing needs, or not?

You could get a flat for about £300k in parts of outer London. Not sure how much lenders are prepared to stump up these days, but say 3 x salary, even earning £50k (unlikely for a computing graduate I suspect) that still means finding £150k for a deposit. And then add in stamp duty, legal costs etc .

OK then experts, how much inheritance do you think it would need to be to definitely make it worthwhile taking the loans?? There most be a financial tipping point.

I think @bluesky is right with needing around 100 - 150,000 deposit on a modest london flat on a v. good salary. So any less than that I'd take the loans.

£150k would buy a small starter home outright where i am though so it's not all about London.
I think it's about how much income your inheritance would generate if you aren't going to spend it all up front, if that income (when added to your wages) pushes you over £40k ish Martyn Lewis seems to show it would be better to pay the fees up front.

You also have to think about the return that cash could buy you if you used the loan for fees/maintenance.

Buying a house outright for instance, and using the loans, is likely to be financially far more beneficial. You save the money you would have otherwise spent in rent, and have something likely to appreciate if you're in the right area.

I'd say inheriting £500k or more and pay upfront - but invest your £500k well. Inherit less and take the loan.

I also think if he should the inheritance to get on the property ladder.

You could do the half and half as we did. They borrow the fee but we funded living costs.

If you're going to take out loans, take out as much as you can. The amount your borrow doesn't make any difference to what you pay back, as that is linked to how much you are earning. So that's where these loans differ to any other commercial loans you might take out. DD is about to start a Master's course, so the loan she can take out for around £10,500 will just disappear into the same black hole and make no difference to her monthly repayments.

If you're paying £280 a month, you're earning sufficient to be able to afford to pay £280 a month. The only figure that's meaningful every month is what goes into your bank account.

DD is about to start a Master's course, so the loan she can take out for around £10,500 will just disappear into the same black hole and make no difference to her monthly repayments.

Errr please check that. I thought the PG loans repayments were on top of UG repayments, so 15% of salary rather than the 9% for UG.

@titchy

That's right. You can take a phd loan on top of that and that would be grouped with the masters loan. But the post-grad and under-grad loans are separate.

If you can afford to self fund a masters I do think that's something which would be worth doing because the repayments of undergrad plus postgrad just get silly.

I chose to pay so they would / will graduate debt free as on the whole we tend to be higher earners (£100k+).

Also there are psychological advantages of not having that 9% "graduate tax" hanging over you.

Interesting to see Martin Lewis on Question Time on Thursday running rings round the politicians and berating them for fuelling the myths about graduate 'debt' for their own purposes. He quite rightly feels that this deters students from poorer families from going to university.

mobile.twitter.com/bbcquestiontime/status/992166288020549632/video/1

i agree on that - that never in British history has it been so cheap to go to university. My uncle had to pay full fees (before grants came out and and no loans - the fees were the same as the £9250 of today surprisingly). I only got a minimum grant so my parents at huge cost had to make it up to the full grant . If your parents did not do that you just couldn 't go, no loans in those days.

Today you can go as you don't pay a single penny up front.

That does not however change my mind that if mothers earn enough to pay the fees and their children will be likely to have high paid work it is worth funding their fees and rent.

System now is to all intents and purposes the same as when you went Xenia (unless you are a pensioner?!). Parents are expected to pay if they earn enough - same as then. Minimum loan does not cover maintenance. At least in those days parents could claim the tax back on their contribution. And students could claim benefits.

Golly, yes, you're right titchy. However, for us whilst we do have the money for the Master's, but wouldn't have it for anything else, my advice to DD would be to take the second loan, as the time it would take us to save up another £10,000, which could be used for, say, a deposit for a house, would be very long. In time, we would be happy to help DD pay the second loan. The student loans are based on ability to pay and are therefore a good thing for us in our position. DD's never going to be earning loads and we don't have an inheritance like the OP to fall back on.