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

[WandaOver]

Take the loan or pay up front, assuming you can?
This thread was a couple of years ago and I'm thinking things have changed since then. Brexit, inflation, interest rates.
We have two DC at uni and both have loans but we always intended to keep it under review.
One difficulty is the wish to treat both DC the same, whilst their career path and earnings may be different.

[alreadytaken]

tax rules indeed change often - but under this government usually to give more money to the rich. The proposal to change tax on rental is aimed at airbnb. Drafting that would not be straightforward but it isnt intended to apply to longer term rental.

However I would expect at some stage that early repayments would start to attract penalties. The only way to avoid the 9% tax would then be to not take out a loan in the first place, I think they'd find it more difficult to introduce a general 9% tax rise.

Also some of my friends/ relatives have dies unexectedly early, either from accident or having health issues that werent considered that serious. So while IHT is not the major considration it does feature in my thinking.

[Ta1kinPeace]

here
THe change to hit Airbnb should not affect people who have lodgers though
then gain that article was TReasury kite flying
I'll believe it when it happens

[EnormousTiger]

Here, thanks. I did go off yesterday to look that up before I saw your post as I also read that something in the budget was changing it but I could not find what I was after. I just found that there was something to do with taxation changes regarding airbnb letting. I just did not find what I was after but I had also remembered a budget change too.

scary, yes I agree. It is one reason I cashed my pensions recently and gave what was left after tax to the older children for housing. I expect to live about 30 years so care home and inheritance tax on my death at 80+ will probably not be an issue but giving it now when the children need the money feels the right thing for me (not everyone's choice - I have my own business and will work until I die just about with a lot of years to come saving money up). Also the state keeps changing tax rules so they might introduce a tax on gifts . I think in the past we had capital transfer tax so not just a tax when you die but on giving money but I might be wrong. That might come in again in future as it is weird that if you give money and survive 7 years no IHT. If you die and hand it over then 40% is "stolen" by the state. It has little logic to it.

[HereThereThen]

HERE is a telegraph article on the proposed possible removal]] of the tax relief for rent a room income. (March 2017)

[HereThereThen]

I think the max you can earn tax free from rent a room scheme was £7500? However, I think there was something in the last budget about reducing the amount or making it taxable or something...I can't remember but there is something that makes it less attractive.

[homebythesea]

We thought about buying a student house (we already have a portfolio of btl flats which are rented to professionals). The yield is extraordinary - my DS and 4 others will be paying £80pw for their rooms in a student house which would cost about £100k to buy. That's a 20% yield per annum (we are lucky if we get 5% on flats). What put us off is the inevitable maintenance and general hassle which wouid eat into the income and the lack of capital growth when the house is sold because of the area (our other properties are in an area still going up quite steadily).

I recently discovered the house I lived in as a student which was owned by one of my housemate's Dad is still registered as a student accommodation- they will have made quite an income out of that in 25 years (assuming they still own it!)

[scaryteacher]

Tiger Given the current rules on deprivation of income for care purposes, it makes sense to put the money towards university, and also for IHT, as there is no limit on how much you can contribute. Given that some friends of my age have died before their kids got to uni, or whilst they were at uni, then for me, it makes sense.

[drinkswineoutofamug]

I've got a loan while I do my open university degree, while working full time. It's the only way I can do it. The course is £2,875 a year but I don't have that as spare cash after living expenses.
A lot of my work colleagues whose children go to uni pay for their accommodation etc and the kids take the loan for fees. They are also expected to get a part time job to pay their way, mainly in pubs
I know I may get stung with paying it back but I'm along way from earning the £21k .

[QuiteUnfitBit]

I am not convinced capital values are shooting up over the next 2 years. Yes, totally agree.

[QuiteUnfitBit]

That sounds really interesting. Sadly, my DS's first choice looks like being Bath... v expensive city! (The only plus point is that he's very careful with his money.) But it could be useful for quite a few (rich) people, I think. I hadn't realised how high the rent-a-room allowance was. Hmm, perhaps I ought to be thinking about renting out his room during term time...

[EnormousTiger]

My daughter's friend's father bought a 3 story or may be 4 house for the on at Bristol. The boys did it up over the summer and then rentd out the spare rooms including to my daughter for the next 1 years. Not something most of us can afford. It was good experience for the son too in hours of painting and DIY, dealing with housemates and letting income etc etc. stamp duty is so high however that if your child just needs somewhere for years 2 and 3 and will probably then move for work i am not sure in most cases it would be worth it particularly as in most of the country I am not convinced capital values are shooting up over the next 2 years.

[Ta1kinPeace]

Slightly side tracking, but with the tax free "rent a room" allowance now at nearly £10k, taking in lodgers to finance a house is well and truly viable

[TotallyEclipsed]

Quiteunfitbit, there are mortgages to do that: "buy for uni" mortgages. I read about them recently, eg: an article here - www.google.co.uk/amp/s/amp.theguardian.com/money/2015/jan/10/mortgage-students-buy-own-homes. If the house is bought in the students name then the extra 3% stamp duty isn't payable. It sounds like it can work well if a) parents can afford it, b) youngsters aren't too feckless, and c) they choose a university in a town/city where the house price vs student rental prices work.

Moomin, I think the current generation have been utterly exploited on this, and in 30 years time I reckon the banks of mum and dad will be a lot poorer than today.

[EnormousTiger]

Inheritance tax risks when giving to children at university stage is a bit of a red herring unless you are 88 and on death's door. most of us have a lot mrioe than 7 year to go (no IHT if you die more than 7 years after a gift).

The basic rate of tax is 20% and NI is 12% on top of that so 32%. What was tax and NI 30 years ago at basic rate? It might have even been the same at 33% or just abotu the same.

Anyway I have chosen to ensure the children graduate debt free without taking out any loans. I know all the pros and cons. For us that has been best and I work full time and can afford it - just. My daughters are now lawyers in their 20s paying 40% tax so clearly would have had to repay loan and lenders do ask to see all your bank statements when you get a mortgage to assess what you spend even on things like eating out never mind childcare and student loans.

Most people have no choice and take the loans and don't pay them off early and that works for them however.

Quite- re BTL loan - my daughter (after university) bought a buy to let as first property and lived at home or with friends as could not afford to live in it (and now lives in it). My son who is younger could not as the rules had changed in that you cannot get a buy to let unless you already own your own place as far as I know. He bought anyway but certainly that route via buy to let loans seems to have been ruled out for adult children if it's their first property apparently because so many were lying which is a pity. My daughter was not lying at all - she didn't live in it and she had tenants. Some people were saying they were going to let it out, get the loan and then live in it and not get tenants.

The twins will cost me £150k over 3 years at university coming up from September without loans and includnig rent and allowance (£75k each).

[StickyWick]

MoominCat

It might make a difference when your DC were at Uni. As I'm sure you know the T and Cs seem to change almost yearly. What applies now might not be relevant to earlier versions of the student loans.

[Moominmammacat]

I've bleated on about this before but it's 20% tax, 9% loan + 12% National Insurance. Then if you take out a post grad loan, as one of mine has, another 6% = 47%. Yippee. I've been vastly depressed by an earlier comment that the worst thing you can do is pay some of the fees up front but not all. Just what I did in first year for three of mine ...

[BackforGood]

9% loss of income is huge in my book.I find it strange when people say it is only a graduate tax of 9% over 21k so that is ok. The same people would be screaming if the normal tax rate were increased by even 1%, let alone 9%.

Agree that no-one likes it when an increase is announced, but, when I started work, everyone lost 1/3 of their gross income in tax and NI payments. I know people now like to say 'it was alright in the old days as you didn't pay for University', but in comparison to the massively high personal allowances (meaning you don't pay ANY tax on the first half of your income when you start work) then the base rate of tax now only being 22%, it seems to me that graduates are still better off, and those that haven't been to university are a lot better off in terms of what % of their gross pay actually hits their bank accounts.

[QuiteUnfitBit]

I know someone who thought about using their money to get a student buy-to-let, and then their DD could live there rent-free. I assume they were thinking of using the cash as a deposit, then getting BTL loan (unless it was all cash, I didn't ask!). I don't know if they did it, though.

Now, you have to pay the extra tax of 3%, but perhaps you could put it in the child's name, although I doubt they'd be able to get a BTL mortgage? If I had the money, though, I'm not sure I'd want to put it in my DCs' names!!!

[jeanne16]

9% loss of income is huge in my book.I find it strange when people say it is only a graduate tax of 9% over 21k so that is ok. The same people would be screaming if the normal tax rate were increased by even 1%, let alone 9%.

[Ta1kinPeace]

Student loan does not count as borrowing for mortgages. It counts as a 9% reduction income

[scaryteacher]

We are paying for uni in full, I don't like the ease with which the Ts and Cs are altered, and I would prefer ds to be debt free. The IHT angle is also a benefit, as were we to gift him a house deposit, there would be an IHT implication. He is in the fortunate position of having a deposit already, due to an inheritance.

[WandaOver]

It does seem that unless you can comfortably do both then house deposit trumps student loan. Has anyone else heard of mortgage lenders wanting student loan to be below £20k?

[jeanne16]

Martin Lewis did originally say take out the full loan but has since back tracked because of the freezing of the 21K threshold.

[StickyWick]

BackforGood
I think Martin Lewis from MONEYSAVINGEXPERT suggests giving your D.C. House deposits rather than paying for their Uni fees.

[BackforGood]

I still can't help thinking, that if I wish I had £150 000 to pay for each my my dcs fees + maintenance loans (working on assumption they each do a 3 yr degree), it has to be better for them to pay the nominal 'tax' out of their salary each month for the years they are earning over £21K, and to have a £50K deposit for a home, than to have nothing for a home and no student debt.

Basing this on two things - one is, that if they have no deposit, it becomes really difficult to get a property in the first place, and each month they will be giving away the same (or more) money to someone else in rent, instead of paying down their own mortgage.
The second being, that if - for a myriad of reasons - there are years in their life when they don't earn £21K, then they won't pay anything on student loans, but would still be having to pay if they had and extra £50K on a mortgage. There are 101 reasons why you might go for a spell without an income, or with a PT income, and also lots of jobs that don't earn over the threshold. So, if I could help them financially by that much, then surely a roof over their head is the way to go ?