Should to pay your child's course fees?

[MollyHuaCha]

Just that really. Students now start repaying their loan once they earn more than £25k per year.

If you can afford to fund your child's course fees and living expenses in order for them to avoid taking out a student loan, should you do it?

Any thoughts...???

Not really high about £40k and paying £230 a month for 30 years.

30 years paying 9% more 'tax' than others is a lot of tax. If I was suddenly told I had to pay an extra 9% tax for the rest of my working life I wouldn't be happy about it. The main issue is the very high interest being charged as it is hard to overpay and clear it because of the amount being whacked on each year.

I think the interest rate should be reduced. I also find it slightly mad that the public is paying for people to do their degrees if they dont earn very much (and presumably havent used their degree and didnt need it in the first place). But if the needed the degree to do a skilled job they have to fund it themselves (despite the country requiring these skills)

Allthebest - I don't understand the figures. I thought they paid 6% on everything over £21k. So in your DS's case that would be 6% of £19k - call it £20k to make the sums easier!

That's £1,200 pa or £100 pcm isn't it?

Maths isn't my strong point though so maybe I've misunderstood?

I'm being stupid aren't I - that's just the interest. Presumably you pay an element of the loan back as well!

I really ought to get to grips with this - I have 2 dcs with loans at the moment ....

They just pay o% of all income above the repayment threshold. Until loans plus interest are repaid, or until 30 years has passed, whichever is the sooner. The rate of interest may affect the length of the repayment period but will not affect the amount repaid each month. That will always be 9% of income above the threshold regardless of the amount borrowed.

9% arrrgh autocorrect

It's 9% above the threshold - regardless of whether that pays the interest or the capital sum. Someone on £40k would pay £140 a month. £112 if the repayment threshold goes up to £25k.

So 9% of £20k is £1,800 pa. which works out as £150 pcm on a £40k salary. Still struggling to understand why Allthebest's son is paying £230 pcm on £40k?

For a graduate earning:

£25k = £0 per month
£26k = £7.50 per month
£28k = £22.50 per month
£30k = £37.50 per month

On higher salaries:

£40k = £112.50 per month
£50k = £187.50 per month
£60k = £262.50 per month
£80k = £412.50 per month

Plus the usual deductions of income tax, national insurance, pension contribution, professional membership fees.

Stone The repayments for those who took out loans before 2012 (and before fees went up from £3k to £9K) are higher. They pay on earnings over around £18k. Of course the loans are much smaller.

As to whether they repay interest or capital, it doesn't work like a normal loan, hence other posters calling i a graduate tax.Under the current system the amount they repay depends entirely on their earnings. The amount of the loan is irrelevant. This is why raising the threshold at which repayments start is going to make an actual difference to what the majority pay back, whereas reducing the interest rate would not reduce the repayments.
Reducing the interest would only benefit very high earners who are likely to repay before 30 years,
To quote the much quoted Martin Lewis I particularly like his explanation of why the amount of the loan is irrelevant..

Student loan & interest: £20,000. Your earnings: £31,000.
As you repay 9% of everything above £21,000 your annual repayment is £900.

• Student loan & interest: £50,000. Your earnings: £31,000.

As you repay 9% of everything above £21,000 your annual repayment is £900.

• Student loan & interest: £1 billion. Your earnings: £31,000.

As you repay 9% of everything above £21,000 your annual repayment is £900

Sorry he eanred £40k last year. Now he's on about £50k per year. He is on £22.5k basic plus commission. As part of his salary is commission based some months he pays a bit more and some months a bit less but over the course of the year (assuming regular commission which it is now) it averages to £217.50. The past 3 months have been a bit more commission so £230 pm. (Last tax year was £40k - but I hadn't appreciated his commission has grown somewhat this year as he has finished his second year post uni).

so he pays 9% on £29,000 = £2610 a year =£217.50 per calendar month averaged.

When the threshold goes up to £25,000 he'll pay £30 per month less.

the interest structure is designed to ensure that the vast majority of graduates will not ever "pay off" their loan but will be paying 9% of salary for 30 years - unless this or a subsequent government decides to extend that at some stage. High earners will pay a great deal more than they have borrowed and for them it may be worth overpaying to pay off their loan sooner.

In general it is not worthwhile to pay for your student child. If you can afford to give them a house deposit and fund fees then it is worth considering but otherwise save for their house deposit.

It is worth paying fees if you are older and have a lot of family wealth to pass on as payments to students do not count for any inheritance taxes.

if you want to pay something (and as stated above that isnt usually a good idea) I'd pay fees rather than living costs as that encourages them not to be extravagant with living costs.

I will definitely cover the costs as they're a rip off. Also, living in London I'd expect them to be in the high earner bracket quite quickly.

This is so interesting even though it won't be us for ages and no doubt it will all change again.

I'm glad Martin Lewis came in handy, and of course I meant £10k
Although fees will probably be even more then and my 10K will be worthless.
Mine knows that she will be on her own for the majority, although we'll help where we can of course.

Ta1kin

Another few k would get you a house here, let alone a deposit.
A nice little 2 bed terrace, nice (ish) street.
A typical first home for professionals round here.

High earners will pay a great deal more than they have borrowed and for them it may be worth overpaying to pay off their loan sooner.

I am not sure how this gells with Fex's post below. According to Fex, high earners can never pay off their loan because this is not a normal loan. They have to pay interest on the amount by which their earning exceed the threshold set by the government. Presumably this is for 30 years. It is possible to even pay off this student loan even if the graduate has the cash? Is theoretically possible that if the graduate's earning is high enough and long enough for 30 years, it will exceed the amount of the loan by a significant amount.

Fex, am I misunderstanding? If so, there is no way if I have the cash will I allow my dc to take out a student loan as that would be the financial equivalent of a tithe / indentured servitude for 30 year.

Apologies for the many grammatical errors in my post. I am shaking.

According to Fex, high earners can never pay off their loan because this is not a normal loan

Of course they can (though it may have to be very high earners)
They have to pay interest on the amount by which their earning exceed the threshold set by the government
I'm pretty sure you've misunderstood. The interests accrues on the whole debt. They pay back according to the amount by which their earnings exceed the threshold. So if you are paying back 9% of a small amount over the threshold you won't be reducing the debt, just servicing it; if you are paying pack 9% of enough then you will be able to reduce it and even repay it.

Errol, does that mean that the 9% interest that is paid every month (on the amount by which earnings exceeds the threshold) is applied towards capital repayment of the student loan? Hence the more the graduate earns, the higher the 9% amounts to per month and the faster the loan is paid down.

That's my understanding of it - the same in that respect as other loans.

I may of course have misunderstood too!

The Student Loans has an online calculator that lets you put in various starting salaries and gives you an estimate of how much you will pay off and over what period. It does assume a small annual increase which may not happen but does not include large increases that can occur over a career.

It is really quite informative and shows just how much you will be paying off over the period. Frightening!

"A poster says "these loans do not go away"

That's not strictly true. They do after 30 years if not repaid."

At the moment. But 30 years is a long time in politics - no guarantee that the government won't change the terms. At the moment it would be politically foolhardy - but things can change. The decision a couple of years ago not to raise the threshold in line with inflation (though it's now being announced will be raised to £25k) is possibly the first example!

The interest is 3.1% I believe. If we assume 50k of debt, then going by Molly's calculations above, anyone on about 45k/year or below will only be paying interest (or part of it). A person on 80k a year will be able to clear it in about 12 years. But then who earns 80k at 22! By the time DC might get to that salary, the amount of debt will have gone significantly up so it seems pretty impossible to pay it off.

I wonder when the trend for American style 'college funds' will start in the UK.

My problem with Martin Lewis and the analyses above is that they seem very accountancy driven. Assuming someone has some spare money, choice on how it is spent/saved should be driven by personal preferences. What gives most individual satisfaction.

We probably drive an older car than most on this board, live in a house that badly needs redecorating, have cheaper holidays than many, and have still to pay off our mortgage. Early retirement is not an option. However:

1. We see ourselves responsible for our children until they finish full time education, not just until they turn 18. Unusual perhaps in the UK if MN is to be believed but common elsewhere including much of Asia, American and places like Germany.

1. We believe in a small state. The taxpayer can only afford so much. If we can pay we should, so the money can be spent on those who need it more. (Elderly care, good state schools, reducing NHS queues, help for the least well off to continue to tertiary education etc.) Independence from the state also means independence from changes in political priorities. Now a priority is student fees, but it might not be in five years time.

1. We gain "satisfaction" from investing in our children's education. It is an uncertain world, parenting has been our focus for the past two decades, and we will feel we did a good job if DC emerge as confident, capable, resilient and kind young adults with the flexibility of a good and broad education, and debt free. After that its up to them, but that is the start we want to give them.

1. DC chose University subjects first because they were interested in them, but also as a pathway to careers they thought they would enjoy. It is very likely that their eventual careers will pay above the repayment threshold. Both are academically able so University was a bit of a given, but if they had not been, we would have encouraged them to consider a range of pathways towards their chosen careers, including apprenticeships and vocational study, factoring in cost and future salaries. (Indeed we have been surprised how large a minority from their academic London private schools have chosen to focus on IT, music, drama etc rather than continue through to University. Perhaps why so many young actors, sportspeople and musicians come from private schools - many of the others are heading for University when a generation ago they would have pursued their vocation. )

1. From a London perspective the "paying for a deposit" is an odd one. We don't know if they will ever buy and to be honest, £27,000 won't make a huge difference. We are also very unsure about whether they will stay in the UK. DS passed the assessment for his preferred public sector employer but did not get offered a place. He is applying again but will also apply for similar jobs overseas, and for PhD both in the UK and overseas. It starts getting complicated, so better that they start with a clean slate.

1. An unexpected bonus but both are careful with their money. They know where it came from. Both have heavy University timetables but are willing to earn when they can. I have been surprised that both take packed lunches into college and batch cook. Bus instead of train, nothing new for a college room, instead just selecting used stuff from home, certainly no cars or TVs. We have had to be careful with money to afford their education. This seems to have filtered through and they are equally careful, aware that they are will be pretty lucky to leave University debt free.

Each to their own. Martin Lewis is doing people a disservice by suggesting there is a right answer.

One approach I did like, used by the well-off parents of a bright boy who had not engaged fully at sixth form, was to pay his first year's fees, and tell his they would pay the second year's if he achieved a 2.1. They were not interested in hearing that "the first year does not count" or anything. He was capable of doing well and they were prepared to pay for him to study, but were not prepared to pay for him wasting his time. It seems to have worked. He is really enjoying his degree and is doing very well.