Is it a good idea to pay university tuition fees off upfront?

[SunnyDays01]

Apologies if this has already been done to death but if anybody has any advice regarding tuition fees in particular I'd be grateful. Just about to embark on the student loan route and it occurred to me that there has been a lot in the press regarding the pros and cons of paying university fees upfront. Anyone have any advice/answers? Thank you.

For those that never repay the whole amount (which I'll bet will end up being the majority, given how the estimate of the RAB charge has dropped and dropped and dropped, and that's before anyone has graduated....), the interest rate is completely and utterly irrelevant. You pay a fixed percentage of your salary regardless of whether you accrue interest at 3% above RPI, or 30% above RPI.

What the interest charged will change is the term of the loan, but given that they're wiped out after 30 years anyway that's really only going to affect consistently high earners who are likely to pay it off in full.

Take the tuition loan & bide your time. If you are lucky enough to have this money stash it in these current accounts -

TSB Classic plus - pays 5% on £2000
Club Lloyds - pays 4% on £5000
B of Scotland Vantage x2 - pays 3% on £5000 x2
Tesco - pays 3% on £3000
Santander 1-2-3 pays 3% on £20,000

Create a circle of standing orders (& a couple need direct debits) to fulfill the requirements of the accounts (must pay in £1500 a month). So the money moves from account to account iyswim.

At the end of university see what the politics is like / make an assessment of how best to use the money.

That is what I would do if I was in this position.

They are not a loan.
They are a 9% graduate tax on earnings over £21k

They do not count as borrowing for mortgage calculations
but they do count as a 9% reduction in income.

Any amount not repaid after 30 years is written off.
At present it looks like 49% of loans will not be repaid in full.

There are quite rightly moves afoot to rejig the system so that the Universities only get all of their money once the graduate starts repaying.

NB
The system does not care WHAT job the kids go into, just that the state's investment in their education is worthwhile.

what moves talkin?

I know damn well I will never ever repay all of mine. Quite happy with that to be honest. I think I owe something in the region of 20k but I don't actually know. It's irrelevant really. I only pay about 30 a month anyway.

titchy
The affordability of Student Loans is a worldwide problem. The USA is in deep doo doo on it.
The Economist (my fave bed time reading interspersed with Private Eye and New Scientist) has been banging on for a while that the risk / reward balance needs to shift from parents and the government onto the Unis who merrily snaffle £27,000 in fees for courses with appalling employment outcomes in any work, not just linked work

A few articles Talkin does NOT = 'moves afoot to change the funding system'. Whilst I'd agree the loan system is incredibly flawed, and acknowledge that universities are not too keen on moving back to relying almost solely on public funds as that goes hand in hand with insecurity and slaves to political whim, asking universities to teach THEN get their money simply will not work - how do you think staff and bills would get paid - we are not allowed to hold large amounts in surplus - most institutions only have around 100 net liquidity days in any case.

Amongst the specialist policy wonks and the actual movers and shakers I can assure you there are NO moves afoot to change in this way, whatever Private eye and the Economist might say.

whatever

does not change the fact that one would be mad to pay up front

That I agree with!

Checking in to learn what others think. We'll have this dilemma soon. DH wants to use our savings to pay the fees. I would prefer DD to take the loan.

We are paying up front. Partly because we can, but also because we are concerned that DC should have the chance of staying in their home town and work in rewarding careers of their choosing, and have a decent life.

Debt is debt. London was always expensive and at times we have really struggled with mortgage and school fees. The latter as a result of a similar calculation about whether to pay schools fees, pay railfare, or pay additional mortgage to live in an area with better schools. (The decider was that living near work gave DH more time with our children even if it meant living in a bit of an educational black hole, and me working full time.) It is only now, with our mortgage paid off and school fees coming to an end, that we are finally getting our heads above the water. Repaying student loan on top would have been too much.

Leaving University with a clean slate will mean DC will feel more able to apply for jobs that interest them, whether teacher, health worker or civil servant. If they stay in London, they will still struggle to afford accomodation, so they won't get an easy ride even with loan repayments. Then having this choice will give us more satisfaction that seeing them take City jobs just for the money, whilst we spend our newly available cash on cars or holidays.

I know the money saving tip is to do clever things with savings accounts. But I think the life lesson is more than just considering the technical elements. Not getting into debt unless you have to, and when you do, eg a mortgage, consider the implications carefully, is also a good approach. It means that when the unexpected happens you have flexibility, which is worth a lot as well. One example perhaps. Three or four years into a professional career and a DC is offered a three year secondment to the London office, which will vastly increase long-term promotion prospects. One turns it down because with loan repayments, living in London is simply unaffordable. The other recofgnises that it will involve belt-tightening, but is able to say yes.

We're mad then - but I'm also very happy that my DC are leaving uni debt free. I know they're very lucky, and so do they. DS was away from home during the £3,000 pa era, but DD started in the first year of £9,000 pa, which meant she made the decision to stay at home and commute.

There are two things that swayed us, firstly the interest starts accruing from the time you take the first loan payment, and is not low. Secondly, although a £21,000 salary might seem decent now, in 20 years it won't and probably even people working part-time will fall into the having to re-pay category.

How a uni can justify £9,000 fees for 6 contact hours a week is beyond me - but that's another story.

although a £21,000 salary might seem decent now, in 20 years it won't and probably even people working part-time will fall into the having to re-pay category.
Its index linked .....

It amazes me that people who have a lot of cash seem utterly unable to carry out a net present value calculation and realise that paying tuition fees up front is just daft.

Daft in your eyes perhaps.

We are quite happy that we have made a rational and sensible decision taking into account our circumstances and preferences.

The complaint of "can't justify £9k for 6 hours a week" really annoys me. Some - but very few - courses offer 6 hours of lectures and seminars a week, and these courses are usually based on vast amounts of reading (e.g., English lit, history) that students have to complete in their own time. These courses have about 25-30 hours of directed learning a week - it's not free time!

And apart from lectures and seminars, there are usually also individual meetings with project supervisors, personal tutors, drop-in clinics for writing / analysis skills, etc. But because they're not scheduled hours on a class timetable, students (and parents, it seems) don't think to count them as part of the course.

Plus, students also have access to world-class libraries and computer facilities (often 24 hours at peak times), lab facilities if they're doing a STEM subject, sports and gym facilities that are free or heavily subsidised, cafés with heavily subsidised food, and so on. All paid for out of the famous £9k a year.

To think that university = contact hours is missing the point of university by such a wide margin I don't even know where to start. Gah!

Rant over, sorry OP.

I have this conversation a lot with DH.

He wants to fully fund university, so that our DC leave university as we did; debt free.

Being saddled with an extra tax essentially is pretty crap. Particularly if there are other tax hikes in the future.

That said, I do wonder if it might be a good idea to ask DC to take some of the financial responsibility of tertiary education for themselves. Make them stakeholders so to speak.

DH argues that we paid nothing. No fees. And we got grants. Yet we were responsible and didn't waste a second of our education.

Tough call.

Word
I'm another one who left Uni only with my excess cider overdraft, having received a grant.
When we went, only 1 in 20 graduated - now its 1 in 3

BUT
It seems daft - even for those with cash burning a hole in their pocket - to pay the money up front.

Maybe clear it as a wedding present or when they buy their first house in lieu of a deposit.

However in this day and age, having an awareness of the fact that University costs is no bad thing.

But if you clear it later, you clear the original amount plus interest.

So if you're gonna do it, may as well do it sooner rather than later, no?

Also, none of us know what the future holds. You might have the cash now to pay for the fees up front, but who know in five/ten years?

A friend of mine told me she is covering all accommodation and living expenses, but expecting her DC to borrow for fees.

A compromise.

She also pointed out that since she'll likely get stung for post grad study (where there is so little funding), she wanted some help with itall...

That is why I said up thread about needing to do net present value calculations.
I have spreadsheets for such things - but the numbers are not intuitive as you have to take into account the sacrifice of flexibility.

We have a meeting on Friday with our bank to set up trust funds for our DDs' future. This will give them an income if they need to pay off student loans and cannot manage it out of their income, whatever that may be. They have taken the loans as it is very cheap money, (Martin Lewis says you are mad not to) and it absolutely makes no didfference to their choice of career at all. We are pretty well off, but they still borrowed. Our girls will have a horrendous bill for inheritance tax after we go, a vast amount in comparison to student loans, so we will drip feed the loan repayments to them via trust funds to reduce their IT liability if we have to. If they don't pay much loan back, so be it. Paying up front is a waste of taxed income. You would be way better off getting proper investment advice (not High Street products) and see how you can grow the money for a deposit for a house. We have had very decent gains doing this.

Actually, Wordfactory (and Millymolly )

One option is for you to "give" each of your kids the money to fill up their ISAs through Uni - £3000 in the year they are 15, £18000 in the year they are 16, £15000 per year thereafter
then they can either clear the loan when they graduate with the ISA money, or run both
and so long as you live more than 7 years from the date of transfer there is no IHT

just a thought

These days I would say it is far more important to save for any post grad studies.

Nearly everyone has a degree as having a masters or higher can offer a better chance if employment.
But most post grads (unless on a funded PhD) aren't funded and mine crippled me financially. It still is and I am still paying back the loan which for the first two years was also financially crippling.

The student loan on the other hand doesn't even cross my mind.

Gah. Please excuse typos.