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.

[TannhauserGate]

I don't see why graduates should pay a graduate tax of 9%. A well- educated populace is a good thing for the nation as a whole.
If your child drops out after a year, having had a loan of one third the usual amount, but gets a highly paid job, and earns well over the qualifying amount, presumably they still have to pay 9% of their salary for next 25 years (?sorry don't know actual term, I paid mine off years ago, my DC are small).
These loans are not written off when one declares bankruptcy, either.
Do EU students qualify for loans if they study here? Are they subject to the 9% off salary too, if they stay in UK after graduation?
If one is Scottish, presumably as they don't have fees for HE, they aren't paying the 9% either?
It's hardly fair, is it?
I don't see how, as a society, we can expect people that will be our future nurses, teachers, doctors, etc to get themselves into debt, and be taxed extra for more than half of their working lives.

[TannhauserGate]

Meant to add we will try to pay upfront, so our children don't have this graduate tax, ,if we can.

[homebythesea]

Tannhauser isn't the thinking that graduates on the whole will earn more over their working life than non grads and given no- one has yet found the magic money tree they should contribute to the Govt in return for the services they receive which will enable them to earn more in future.

I also think it sensibly makes young people really think about whether Uni is right for them as they have a direct financial stake in their education. The ridiculous aim of having 50% odd of school leavers going into higher education could have lead to a generation of unfocused and frankly not quite up to it students floating through 3 additional years of education at the cost of the taxpayer. Now I believe it's an active choice rather than something that just "happens" IYSWIM which can't be a bad thing.

[TannhauserGate]

Surely, if graduates earn more, they will already be paying more in taxes?

[titchy]

I agree in principle tann - an educated populace IS good for society as a whole. Unfortunately the government is no longer paying that portion of fees so there is no choice but to get a loan.

[homebythesea]

Quite right Tannhauser

This system, however, means they pay a bit more in return for services received.

It's a cultural shift. I think because we parents tended to have received a "free" education it seems all wrong. Give it a few years and it will be entirely normal to pay, as it has been in the US for generations.

I'm actually quite uncomfortable with the notion that the middle income non university graduate person is paying for the privilege of others to go into higher education, so I'm not against the idea in principle

[jeanne16]

I still don't get why people say take the loan and just view it as a graduate tax. A tax increase of 9% would have most of the population screaming as it is huge. So how can it be that you would have to be a 'muppet' to not take the loan, as was stated above in this thread. Also to think any Government would be in a position to scrap these loans is wishful thinking!

Obviously if you can't afford to pay the fees upfront, then the students have to take a loan. However if you can, then I think you should consider it to allow your DCs to start their working life debt free.

[alreadytaken]

when your DC looks to get a mortgage the interest rate they pay will be party determined by how big a deposit they have. So your first priority is probably the house deposit. If you can afford to help them with a car if they need it, a house deposit if they need it and still pay their living costs/fees then think about it. Most people aren't in that category.

One benefit for the better off is that paying your child's education is free of inheritance tax if you die. So if an elderly parent and rich pay their debts before they finish their course.

[bojorojo]

We could have paid for everything up front. We were educated for free but that was in the days when less than 10% of young people went to university. We all agree we want more than that to go so we have to find a way to pay for it. Asking the less well off to pay for people who should earn a good wage is not on in my view. Graduates who end up being less well off will not pay. Martin Lewis is absolutely right: it makes no financial sense not to take out the loan. The Government's own estimates state that half of graduates will not pay it back. Yes, young people should invest in their own futures.

If you have enough to buy your offspring houses, cars and a decent way of life, as we have, it is still worth taking out the loan. We may pay it off if it impinges on their financial futures, but if they never earn enough, thanks for the free money! Also, a 4 year degree in London is £56,000 of loans! £36,000 tuition plus £5,000 x 4 years = £20,000. Student loans are part of life now and millions have the loans. It is only risk averse parents who see them as debts. Young people, if everything is explained to them, would rather you helped buy a property, not pay money to the university. If you want to help the university, give a financial gift.

[Viviennemary]

I used to think student loans were bad and should be kept down as much as possible. However, this doesn't seem to be the case. You'd be better of keeping the money and using it as a house deposit when he finished Uni.

[jeanne16]

If you really think your DC will earn below 21k after getting a degree, there is absolutely no point in going to uni.

[ThatEffingCreakyFloor]

Just to add OP, hats off to you for such careful financial planning & saving for this, well done & what an incentive the prospect of a leg up on the property ladder might be for your DC to do well at university

[Ughnotagain]

jeanne16 I'd disagree with you there. University doesn't have to just be about job prospects. I graduated in 2009 and have only just hit £21k income (except now I've reduced my hours slightly following maternity leave I've taken a pay cut). It does mean once childcare vouchers are taken into account I fall just shy of the threshold to pay back any student loan (which is quite nice really). I've accepted the fact I'll probably never pay it all back; the amount they add in interest is more then I repay in a year anyway!

You're woefully misled if you think that graduates can just walk into £20k+ jobs after uni. Most can't. Most of the people I know didn't.

OP, looking at this from the perspective of someone who's been to uni and bought a house in the past decade... I would definitely keep the money aside for a house deposit. It'll be a much bigger help for your son than paying his uni fees. Depending on how much you have as well it could be worth looking into the new house deposit ISA (or whatever it's called), though I don't know a massive amount about it.

[jeanne16]

Actually my DD and most of her friends have started on jobs paying considerably more than 21K pa. Also it is worth noting that the Government is showing no sign of increasing the 21 K threshold with inflation. If that does not change, more people will start paying back sooner.

[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!

[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?

[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.

[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?

[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%.

[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.

[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.

[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.

[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.

[DancingDuck]

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

[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!