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.

[SecretSquirrels]

TalkinPeace So far with DC1 in his first year, that's kind of what we are doing, although we plan to keep it under constant review and may switch to paying upfront. New rules, new government who knows. Having said that when they change rules on fees and loans it is not likely to be retrospective.

covering all accommodation and living expenses, but expecting her DC to borrow for fees I think this may be the worst of both worlds because you repay the same percentage of your income regardless of the size of your loan

[TalkinPeace]

I'm still debating whether to utterly cynically play the system and take an income holiday so that the DCs do not have to repay their maintenance loans

[TheWordFactory]

secret but I guess get DC will pay their loans off much faster as the size of the initial loan will be lower?

[TheWordFactory]

talkin if both your DC were similar in age then it could be well worth it!

But if you don't work while your DD is at uni, won't that leave you a bit short when your DS will still be at home and needing things?

[SunnyDays01]

MillyMollyMama, that sounds like an idea that we would be interested in, seeing how we could grow the money for a deposit for a house. Can you recommend where you got investment advice from as I see you said not to use High Street products. Thanks.

[yellowdaisies]

But it's only CPI plus 3% for the first few years. After that the interest is only CPI (currently 0.3%), unless your child is a high earner. ISAs would typically give you more interest than CPI, and debts (eg mortgages are usually a lot higher interest).

So your child would be much better off if you save the money for them and let them have it as a deposit towards a house in the future (or whatever else they might otherwise need a loan for - car, etc) If they're a high earner they can pay it off quickly if they want. If they're not, they'll never pay it off, but would be much better off with a lower mortgage.

I think there's a really good analysis of it all here

[yellowdaisies]

But your first priority needs to be to top up the maintenance grant/loan they get - seems most need around £5,000 per year on top of what they can borrow to manage.

[GingerPhoenix]

I would use the money to put down a deposit on a house instead, if you wanted to you could buy a house in their university town and rent out the rest of the rooms to pay the mortgage.

[BackforGood]

It makes FAR more sense, if you have 27000 to be able to do this (per child, for a basic, 3 yr degree) to give them the money as a deposit for their first home when they are at that stage.
Put it away and earn interest on it now (as per Littleham's suggestions on P2).
Over the first 30 yrs of their working life, there are 101 reasons why, at any point they might not be earning over 21000. During those times (be it maternity leave, starting own business, ill health, travelling, choosing to work PT, redundancy, whatever) all other loans still have to be paid each month, but the graduate tax won't. It's got to make more sense to owe the 27000 you have a choice about, to the Student loan company, rather than the mortgage company.

If you don't want to believe random strangers on the internet, then read someone like Martin Lewis, whose business it is to know these things.

[TalkinPeace]

word
Oh I'd still be working and making money.
Just that my company would be paying me under £24 k for those years.
The remainder would stay in the business undistributed for later use - the joys of reading tax rules for pleasure
I probably won't do it though because it would be 5 years of excessive juggling. I have other creative ideas for how to get money moved around

Sunnydays
Any decent IFA should be able to work with your solicitor and accountant to set it up in a constructive manner.

[Littleham]

I guess it depends on your finances, but being a pessimist I'd be thinking....
What if I lost my job / got ill?
What if prices went up & I needed more for dc's living expenses?
What if the year abroad was really expensive?
What if one of my dc's wanted to do an MA / further degree / longer course?
What if one of them got pregnant?
What if a meteorite landed on my house? (unlikely)
What if a future government got rid of tuition fees? (even more unlikely I know)

It would feel safer having the money stashed away until at least the end of university.

[AllMimsyWereTheBorogoves]

And, to add to that list, as I said upthread, what if the student drops out quite early on? This happened to a family I knew. The student failed the first year exams, failed the re-takes and either didn't take the second re-takes granted, or did take them and failed again. The young person in question had had a brilliant time during that one year of university but it cost the family about £20k, as they had paid the tuition fees and all accommodation costs. Gone, gone, gone. It has caused a rift.

[BackforGood]

Why did my 'pound' signs come out as question marks in little diamonds?

£ £ £

[jeanne16]

So there are 2 links in this thread. 1 to the Martin Lewis article saying you would be stupid not to take a loan, the other to the article in the Telegraph giving a different view of loans.

I find it interesting that people only refer to the article that supports their view. How is it ok to say it Is only a graduate tax, not a loan, so that makes it ok. If the rest of the population were told they faced a substantial tax increase for the next 30 years, there would be an outcry!

Since my DC has a grad job starting in Sep with a starting salary of over 40K, I think our decision to pay the fees upfront was a good one.

[FishWithABicycle]

First priority if you have spare money should be ensuring they have enough to live on without having to work 25hours a week to earn at the same time as studying.

It only saves money to pay them up front if you are 100% confident that your child will have a meteorically successful and well-paid career in which they become higher-rate taxpayers within a few years of graduation and are on 6-figures within a decade - but if that happens, who cares about saving a couple of thou here or there, eh?

My plan, when the time comes, is to top up the official parental contribution with at least £3k additional maintenance each year, and to contribute towards the repayment deductions for up to 10 years or up to when they are earning £35k-ish (whichever sooner) to ease the burden a little.

[MinesAPintOfTea]

Recent here: my parents giving me access to money that matched what they felt I shouldn't have had top take a student loan for meant I
Could buy a house, have ds and do a post grad degree in my mid-twenties. The lack of a loan wouldn't have helped, I had no income.

[Micah]

I saved mine and used it as a deposit for a flat when I graduated.

This was back in the no fees days though. I was lucky enough to get a job to cover my living expenses so didn't need to use loans.

[RingtheBells]

I would leave it until after they had graduated, I would have thought with the amount of DC going to university the chance of most of them getting a job paying much over £21k is remote, sad but probably true. Though the parents that can afford to pay the fees upfront are probably the ones that would expect their DC to be high earning as well.

[lalsy]

We have taken all available loans. If and when the repayments become an issue, we would hope to help our dcs out but see no point in paying money now they may never be asked for. If they go into rewarding, worthwhile and enjoyable low-paid jobs, they will never pay back much of that money so it need not put them off. It is best thought of as a tax that you can avoid by making payments upfront if you seem likely to have to pay it.

Geeka, my dd is doing one (well actually two) of those subjects at a university ranked in the top ten (sometimes top five) for both. She has more than six contact hours, but not huge amounts and it will be less in subsequent years, a meeting with her tutor about once a term, expensive accommodation (she lives in some of the cheapest and it is over 1.5k a year more than the minimum loan), pricey gym and food outlets, a library that is often full, she writes essays with lower word counts than she did at A level which take weeks to be marked - she has not had any back so far this term so has had no written feedback since December. She is enjoying the course, and I am sure the staff are working hard, but I can't see it seems anything to do with 9k a year. Next term, she has one lecture and does exams. She might as well be at home.

[AllMimsyWereTheBorogoves]

People do understand, I hope, that the fees rose to £9k a year because the government used to pay that amount per student to the universities and then it pulled all that funding out. Universities now get no subsidy for undergraduate teaching except a contribution to the cost of labs etc for STEM subjects. Instead of having most funding coming from taxpayers it is now coming directly from students. The universities are worse off under the new system.

lalsy, when you say your daughter might as well be at home, one reason you can say that is that she will have access to much of the study materials she needs - journals, books, reading lists, presentations - through her university's IT system. That costs money, a lot of money, to build up and maintain.

[yearofthegoat]

We don't want our girls to be tempted to stick with low paying jobs or to be dependent on a partner to avoid repaying their loans. We have done the sums under different rpi and salary scenarios and they show the repayments are going to be a massive percentage of monthly take home pay for graduates. We are paying their fees up front so they are debt free on graduation.

[yellowdaisies]

goat How would 11% of earnings over £21k come to a massive percent of take home pay? If they earn £31k they'd be paying around 3% of their total gross pay (11% on the 10k above £21k). If they earn £100k it's still less than 11% of total pay (and only for a few years of they do earn h that much)

No matter how much they borrow or what interest rates are, it's always the same proportion of earnings.

[lalsy]

Mimsy, I agree and I know universities are facing very tough times indeed. My point was in response to the idea that undergraduates on arts courses could see where their 9k was going, for them personally, in a concrete way if they looked hard enough. They are contributing to university funding though, for sure (and don't we feel it ), and some of that goes on what they "get" directly, some on general infrastructure, some on.....But there isn't a direct link is my understanding - universities charge 9k because that is the maximum they are allowed to charge, not because that is what it costs to educate an undergraduate including all infrastructure.

According to MSE, contributions for someone on 22k, 30k and 40k will be 7.50, 67.50 and 142.50 a month. If you spend 10 years on each of those salaries, I have worked out you will pay back a total of 26.1k, so less than the tuition fees, none of the living loan costs, and no interest. So in that scenario, if I have understood correctly, those who could afford to pay upfront would be better off investing and then helping out their dc if they need it with with repayments - they will never get to the interest so it doesn't matter if that racks up?

[uilen]

But there isn't a direct link is my understanding - universities charge 9k because that is the maximum they are allowed to charge, not because that is what it costs to educate an undergraduate including all infrastructure.

For many subjects it doesn't cost 9k - it costs substantially more.

I think people also forget that one hour of teaching time actually costs substantially more in lecturer time, in terms of preparation, marking etc. For example, consider a very specialised final year course given to a handful of students, with 40 hours of contact time. Forty hours of contact time can easily correspond to ten times as much with preparation and marking (often more), when this is a specialised course for which no teaching resources exist, lectures and notes have to be prepared from scratch, long assignments have to be marked. Typically it can take several hours to mark a single assignment in a final year course; marking half a dozen can take several days of work. The length of time needed for marking is also not necessarily correlated with the length of the assignment - I don't think the marking is comparable with A level assignments.

Now 400 hours is equivalent to 10 weeks of a lecturer's time so this one little course would cost way more than students and parents realise.

This said I am surprised by how little laisy's daughter seems to be getting.