Is it true that it's never worth paying uni fees up front?

[SummeryNights]

DD who is just turning 18 inherited some money which she doesn't have full control of until she turns 21. She wants to fund her university fees with it, and part of her livings costs, so that she won't have to take out any loans.
She has a meeting with investment professional trustee very soon. At last chat he advised not to do so, as if she doesn't end up earning a good salary for a significant amount of years, such as by becoming a SAHM, she would never have to pay the loans back anyway. She felt undermined by this (and thought it was sexist) and pushed back; he said to discuss it once she has university offers (she does now) and a career plan for after graduation (not specifically, apart from that she wants a fulfilling one and always to work hard, as she does now). Ultimately she could pay off the loan in her 3rd year when she turns 21, but that will cost her thousands of pounds in interest payments.

My instinct is that ultimately it's her money and her reasoning is sensible, so to back her up. But the trustee said it's never worth paying uni fees up front and all home students take the loan. ("Even the children of millionaires.") DD's research leads her to think this isn't true, but I can't find much information on that. Any ideas, anyone?

I’d consider putting it as quickly as possible into a LISA (?) one of those isas that go towards a first time buyer and the government tops it up 25. Seems like a good return on investment if she’s looking to buy

Generally I can see the attraction of no debt - but inevitably she’ll have debt in life - mortgage, credit cards maybe, car. Consider the cost of the loan in interest, the amount she’ll pay back based on expected earnings, the possibility some of the loan will be written off. Try and estimate ‘effective’ interest

Legally, control of it has to be passed to her at 21, so it can't be invested in anything that ties it up past that point, IYSWIM.

I've got some figures from her for what I think relates to the 'effective interest' you mention, but there's a lot of guesswork involved until she knows how much she'll earn so I haven't dug into that much. Sounds like I should.

I would not do this. I would save it towards a house. My husband and I both have degrees. We are 26 + 27 and have never made any payments back on the loans.

What course is she doing and what are her earnings prospects? This is the really critical point.

In addition: you don't know at the future will bring. My very hardworking DD got a place on a highly selective course which would have given her good earning prospects. She fell seriously ill in her first year and has since changed course for something more fulfilling but with less attractive job prospects.

Ultimately though your DD is an adult and she gets the final say.

I agree with her investment adviser. Martin Lewis of Moneysavingexpert says the same. Save/invest the money and if necessary she can draw on it to top up her salary after student loan deductions.

Though it begs the question why your DD is paying for investment advice if she's questioning what advice he's giving? Does she think she knows something he doesn't?

Making the optimum decision from a financial POV requires a crystal ball as to earnings and career structure. Before DD went to uni, she and DH developed a spreadsheet to model various different parameters- salary, career breaks (yes, you do need to consider the structural sexism around having a family, even if a teenager currently thinks it's irrelevant). You have to then consider what you can't do with the money if you've already used it for fees - deposit on a house is the most obvious. In general, the advice to take the loan will be most likely the better one for most people.

However, set against that is the uncertainty not only of the financial world in general (what happens to the value of the money if there was a period of low interest rates and high inflation for instance?) but also in the terms of the loan itself. They're not set in stone.

Though it begs the question why your DD is paying for investment advice if she's questioning what advice he's giving?

We've had crap investment advice in the past. In this case it sounds fine, but questioning FAs is wise!

Ultimately she could pay off the loan in her 3rd year when she turns 21, but that will cost her thousands of pounds in interest payments.

Another option might be to defer the decision until she's completed her first year to check if she's on track relative to her expectations and plans. She'd incur interest but not so much.

Thanks for responses.

What course is she doing and what are her earnings prospects?

Law, and she'd like to be a barrister, so future earnings could be high, but they won't be intially and of course not a given to secure a pupillage etc.

Sorry your DD fell seriously ill. That kind of thing is a consideration we're aware of, especially as DD inherited this money due to a close relative dying suddenly far too young. She feels the odds of that are low enough that it's balances out by the upside (paying her own way because she can afford to and that's the right thing to do, not accruing interest payments from day 1, etc..)

why your DD is paying for investment advice if she's questioning what advice he's giving?

He is a trustee, chosen by the relative she inherited the money from. She doesn't have a choice.
They fell out a bit when he opposed her going private for 6th form on rather spurious grounds. I backed her up then, as she was right. However I made it clear that by doing so I was not saying she is always right and won't automatically back her up against him. I think this situation is probably rather nuanced and they're both being too black/white.

Funnily enough, the Martin Lewis advice and figues is part of her argument for why she should pay it up front, whilst he has quoted it as why she shouldn't. It comes down to earning potential. He doesn't yet know she has an Oxbridge offer though which she thinks might convince him, if she gets the grades.

People always say student debt is more of a tax than a loan, but that's not strictly true as it affects affordability if you buy a house and want a mortgage.

However, I would probably take that chance and use the money as a deposit on a house and hope I didn't need to borrow as much so affordability was less of an issue anyway.

I would use the money to fund living costs at uni though to the extent that she does not earn enough in eg holidays to cover them, I am only talking about tuition fees.

I don't agree that she will inevitably have debt. Mortgage probably. But you can buy a car outright if you've got the money in the bank.

Sorry not sure my post is clear.

Take loan for tuition fees and pay back via PAYE if earn enough.

Don't take living costs loan, use savings for that. And rest of savings for deposit later.

Yes Errol the fact that the terms of the loan can be retrospectively changed is a big motivator for her decision. She believes that things are getting worse for women and as a result interest while on mat leave etc... are likely to be implemented. Don't know how much this is a teenager catastrophising, as politics is pretty catastrophic right now!

I think I need to make one of those spreadsheets with her, check all her figures and suppositions. As you say though, ultimately only a crystal ball could tell us.

Another option might be to defer the decision until she's completed her first year to check if she's on track relative to her expectations and plans. She'd incur interest but not so much.

Hmm, good thought. I think I need some such compromises up my sleeve, in case neither of them back down.

I think it's better to use the money as a house deposit once she starts working, that could save her lots of rental money. It will be hard to save a big chunk of money quickly in the first few years no matter what good job she will have. The starting salary normally won't be high for a couple of years unless you are at finance banking side. Then she can try to pay back the loan quickly once she has the house, and salary is high enough.

Absolutely don't prepay. Far more useful to have it in hand at 21 and allowing her to choose at that point than it would be to use it up. Tuition fees loan is cheap enough that she can outpace the interest on it by judicious S&S ISA usage.

Not all lawyers are well paid. It’s also very difficult to get a pupilage/training contract these days. Unless she’s at oxbridge or a Russel with a good law Department, I wouldn’t act on the assumption that she will get a well paid job. If it’s the former though I’d pay upfront.

If she gets her predicted grades (which she should) then it will be Oxbridge, Reginabambina. She thinks this makes a difference in paying up front - sounds like you do too?

We pay our DC's fees and maintenance so no loans - but that's just because we can afford it easily (its actually cheaper for us than school fees, so just a few years' extra paying out IYSWIM).

However for your daughter I would encourage prioritising housing costs with her inheritance. So few of her generation will be able to buy property, and when they do a significant proportion of their income will be taken with mortgage payments. Weigh this against the actually very small deduction (if any) from her income to repay the loans when she starts work . It's really a no brainer.

Thanks VanCleef8. Are you certain enough about DC's furture earning potential to think it will save money in the long term, or do you feel like it's the right thing to do regardless because you can easily afford it? (Or a different reason entirely?)

I didn't want to look like I was doing this for a stealth boast, but as it keeps coming up, university costs won't use up the whole inheritance so as long as she doesn't develop any expensive habits she would still be able to purchase a house (though obviously a smaller deposit than if she took the loans).

I think generally it is better to see it as a tax rather than a loan. Agree with what has been said before about what Martin Lewis says. I inherited a small pot of money which I was considering paying off some of my loan. When I looked into it I found that it was better to use the money towards our house deposit. While it does sound sexist she does need to consider about career breaks etc. I’m a junior doctor and will earn good money when I am fully qualified. I still don’t expect to pay off my loan when career breaks, mat leave and being part time are all taken into account. When I was her age I was very career driven- wasn’t going to work part time etc but then met my now husband and his jobs means that it is better I work part time and actually I’m really looking forward to it. She needs to be aware that her feelings towards work may change once she is doing the job. If she pays the money upfront she can’t undo it- if her circumstances then change and she needs the money for something else it will be gone whereas with the loan it will just pause. Take a look at this:
www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/

We didn't want them to have the "debt" (although I know its not really a "debt") and also feel that as we can easily afford it we should not burden the state with the funding - university loans are going to end up in a massive black hole for the economy as most will never be paid back, it's a completely unsustainable model.

Surely as it acts as a 9% tax - if she expects to be a high earner in law she should be paying it up front?

I think paying upfront is madness.
Also, you can't predict the future.

I am the only person on MN who thinks if you can pay the fees then in some situations it is worth it. I have paid so that my 5 children don't have any student loans.

My daughters earn £100k ish as London lawyers and at that level you are better off without the loans. My older son doesn't earn that much but even he is glad not to have a student loan - there are ;psychological reason as well as financial why it may be worth paying the fees.

Finally look at what I am saving the tax payer i.e. other mumsnetters. I should be getting some kind of socialist medal as I am relieving the state of the burden. Perhaps I get a special place reserved in heaven for paying the fees! (joking).
I am very glad i have paid. I have twins at Bristol university at the moment at least one of whom is going into law - he has his place at law school for September 2020 already so I am happy to fund them all even if they go off an earn nothing as housewives or resting actors.

In her situation - with an Oxbridge Law offer and planning to be a barrister - I’d pay the fees. I’d maybe wait until 1st year complete, or even to see if I got a training contract, to have more confidence that was the path I was headed down.

The Martin Lewis advice is really geared towards graduates who don’t expect to earn a good salary. It’s quite a steep tax for those who do.

I looked into it (doing a law degree, taking a break from a well paid role i can go back to )

It was worth it to me to just pay up front and not take any loan as the rate of interest (6%?) is way more than savings make.

However, if i was planning to not return to work after the course (and I wouldn't need to) then taking the loan and never paying it off (it expires at 60 doesn;t it?) would make sense.

I was ruled out for a loan as I have a past degree anyway so was all academic. Oddly, i never had a loan in the past either, was grants then and as parents were high earners, they paid it all anyway.