Should I support our child through uni or make him take maintenance loan?

[elfreda69]

I am a single parent and have quite religiously saved every spare penny for my DD to go to university. I earn a reasonable salary and my DDs and I live quite frugally (we live in 2 bed place and I sleep in the living room, if we go on holidays they are always cheap and cheerful).
I have managed to save a considerable sum and will be able to meet the bulk of my son's accommodation and living costs whilst away at uni.

However, I began looking into Martin Lewis' advice about not paying for anything up front. I have come to the conclusion that actually allowing my DD to take the highest maintenance loan he can get and actually getting into debt may be the best option. Then, he could use the money I have saved for a deposit on a flat.

My thinking is this:
My DD will probably borrow 56k
Currently, students repay their student loan once they earn 21k. They must pay 9% of all earnings above 21k. The loan is wiped out after 30 yrs.

If my DD's average salary after working 30 years is 40k per year, then he will repay, on average, 1710 per year.
1710 x 30 years = 51300. He will in effect pay back less than he originally loaned and will not pay off the interest.

Has anyone else looked into this? With these figures, am I wrong to encourage my DD to take on board student debt? Thoughts please.

[TinklyLittleLaugh]

We could cover tuition plus maintenance. We don't. They take the loans, minimum maintenance is about £3500, plus we give them £4000 a year. This seems loads to me so they work to cover any extras they need.

We will review this when they graduate and get jobs: at the moment I'm leaning towards house deposits though.

[jeanne16]

Sable poor- I stand corrected- while earning between 21k and 41 k, interest is charged at RPI plus a sliding scale up to 3 %. Thereafter it is charged at RPI plus 3%.

However I still suggest people should look at the repayment calculator. Assuming a loan of 51k over 3 years, with a starting salary of 30k, interest payments start at £53 per month. While this may not be too bad, it will go up with inflation and any salary increases. The really awful point though is that you will be paying it for 22 years and will pay back £111k, which is more than double the loan.

So I suppose if you think your DC will never earn much over 21k or won't work at all, then it doesn't matter. However there will be lots of DCs starting on higher salaries who will be affected by this.

[2rebecca]

I think if you can afford to support your kids at uni then it makes more sense than them having loans. Our outgoings are much reduced now so we have money to help.

[sablepoot]

Jeanne, I don't know where you are seeing that. The government site www.gov.uk/repaying-your-student-loan/what-you-pay sets it out clearly as does moneysaving expert.

[jeanne16]

Sablepoot- the Govt calculator states interest is RPI plus 3 % while at uni, then RPI until starting first job then it is back to RPI plus 3%. So I am unclear where you get the calculation that you need to be earning 41k before interest is back at RPI plus 3%. Could you please clarify.

I think everyone on here should look at the Govt calculator to see how much your DCs will pay back. The amount ramps up considerably the slower you pay it off, as with all loans.

[DancingDuck]

Jeanne - thank you. I didn't realise they weren't interest free (DC still too young for this to be at the front of our minds but starting to think about it and consider what best to use savings for.)

[Ughnotagain]

We thought helping them pay it off it might reduce the inheritance tax bill our DD's will be faced with! Now that is a real problem!



Oh wow yes how difficult it must be to inherit upwards of £325k.

Give me strength.

[sablepoot]

Better to take as much maintenance cost loan as you are entitled to as well Simon. As the overall size of the loan won't affect the repayments until such time as the smaller loan would have been paid off completely (which is never in many cases), you are quite likely turning down free money if you don't.

[WhoTheFuckIsSimon]

We will support dd through uni. She will have to pay back the 9k a year tuition fees but we will pay for her accommodation and living expenses.

[sablepoot]

If you earn £21k or less, the interest rate on 2012+ student loans is only RPI Jeanne, not RPI+3% (from the April following graduation). It is the RPI +3% while you are studying until the April following graduation however. At the moment that is 3.9%, but back in 2012 it was around 6%. You need to be earning over £41k for the interest rate to be back at RPI + 3%.

For city types starting on say £40k+ AND set to double that within a few years AND unlikely to want to work reduced hours or meander off into some low paying field later on, then it probably is worth paying them off sooner, but you need a crystal ball and a gambling instinct to know this in advance.

[jeanne16]

Dancing duck - The loans are not interest free. They charge RPI plus 3 % from the moment you take out the loan! If they were interest free there would be absolutely no debate on whether to take them. However RPI plus 3% is more than most people pay on their mortgages.

So while your DCs are earning less than 21K, the interest is piling up!

Re jobs paying more than 21k, I would point out that teachers start on more than this.

[caroldecker]

I think if you are worried about how they think, then you can offer some sort of match funding - ie the minimum recommended based on your income, then £1 for every £1/2/5 they earn. This means they have to get some idea of working for a living, but do not suffer too much.
Also, the step down in lifestyle will be difficult for them anyway.

[EricNorthmanSucks]

carol I know that even if we cover all university expenses then there is no reason to hand over enough for DC to live like lords.

But I wonder if psychologically it makes a difference to how you view the money. If you know you are responsible for paying it back do you take more care than if your wealthy parents gave it to you?

Also, I would need to keep a very tight eye in DH! I can see him giving the DC more than they need !

[EricNorthmanSucks]

bojo I will keep impressing this on DH.

It's odd, he's usually so savvy in respect of finances but has a real blind spot regarding student loans.

[bojorojo]

It totally depends on what a student wants to do, or ends up doing , doesn't it. If they are city types or go into engineering in shortage areas, they will exceed £21,000, in some cases, by a long way. There are plenty of statistics around that show "lesser" degrees do not lead to large salaries in the first place and plenty of arts students find they struggle to earn a competitive wage. My DDs friends range from earning £65,000 for starters in a merchant bank to earning £0 as an actress.

I think, if the loan seriously impacts on what they can do in the future, financially, then pay it off after they have graduated. At least you know what their job/career is likely to pay by then. Someone I know had a stay at home Mum for a DD at the age of 24. Hardly worked either. Her parents paid the fees for her Biology degree up front and the dd never took out any loan. Money down the drain really. They had saved and saved and ran a market stall. Hardly well off people, but loan averse. DD now lives with them.

Those who went to university in the past - and yes, it was a small percentage until the Polytechnics came on stream and new universities were created in the 1960s - had huge advantages. Clearly, the numbers going to university now cannot be sustained by taxation on the general population. If graduates do not get jobs that are well paid, they pay relatively little back. The fees are nowhere near the real costs of the courses anyway. The international fees are a fairer reflection of the real costs.

Take out the loan, Eric. It really makes sense but pay it off, if you feel this makes sense, after graduation. We thought helping them pay it off it might reduce the inheritance tax bill our DD's will be faced with! Now that is a real problem!

[DancingDuck]

Jeanne what careers are they going into? It's heartening to think they are starting out on reasonable salaries.

[DancingDuck]

OP, DH and I had this exact discussion. We have money saved for their future. It could get them through college or go towards a house. I thought pay for college but DH said, no, they get interest free loans and time to pay them back. We should take advantage of that and set the money aside for their first flats. I think on reflection he's right.

[bruffin]

homebythesea
Most parents didnt receive that free education, because most parents didnt even stay on to 6th form let alone go to university.Crikeyblimey Also agree with Viviennemary, DH and and I both have had inheritances in the last two years and DS has also recieved inheritances and none of that has impacted on his student loans this year.You have to declare taxable income, so taxable interest you receive is counted but not the original money.

[Viviennemary]

I don't think an inheritance or savings has any impact on entitlement to student loans. Goes entirely on parents income. Which makes the whole thing a little mad.

[caroldecker]

Eric why would they be incapable of living like a normal student if you paid them the same as having a loan would leave them? They only have more money than average if you give it to them - the benefit to them i higher take home pay in the future.

[AndNowItsSeven]

00 Ta1kinPeece it's important to note the student loan does not reduce your net income by 9% it reduces your gross income minus £21k by 9%.

[Crikeyblimey]

Just a quick question - don't want to hijack.
Ds has a fair bit of money himself (inheritance from my mother). Will this have any impact on his ability to access student loans or does it purely go on my and dh's financial situation?

[EricNorthmanSucks]

bojo DH and I go endlessly around the houses about student loans.

He wants to pay for their education ( we are lucky in that we can afford to do that ) as he fed that they should be no more encumbered than we were when they leave university.

I have sympathy with this. When we went, the course was free and we received grants to live on. I think I even signed on between first and second year!

But I also don't want my DC to be in a different position to everyone else. I don't want them acting like some euro-trash indulgents, incapable of living like a normal student.

[Ughnotagain]

Oh ok jeanne, you obviously know better then

The £21k threshold was brought in with £9k tuition fees. It was a fair jump from £15k, which is the threshold mine falls in with.

Niceteeth in what way was it taken into account? Surely if payments are deducted at source it's still just your net pay they're looking at anyway?

[Niceteeth]

I bought a house this year and found that the £9000 I had remaining on my student loan impacted massively on how much I could borrow. It ended up making financial sense to pay it off completely so that I could borrow what I needed. I was very surprised as I thought it was not taken into account, and it nearly caused the sale to fall through!