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?

No account is made of individual preferences, yet these make up a large part of any purchasing or saving decision.

We are very debt adverse. We also wanted our DC to be able to choose their career, rather than be guided by which paid most. We also wanted them to be able to return to London and afford to live comfortably even if they were working for the public sector or similar.

Having our children leave university debt free is a priority for us. We drive a 15 year old car and our house has not been decorated for 30 years. We probably won’t take much of a holiday this summer. It’s all fine. It’s not ‘mad’. We are entitled to spend our money according to our preferences, and we derive real satisfaction from allowing the DC to start their lives without this additional “tax”.

The DC are grateful. They know that the money comes from us and they are careful with it. They find it odd that many of their friends seem to be spending money freely yet, as well as taking out loans, are expecting parents to dig deep into their pockets to make up ‘gaps’. This lesson in thriftiness (and whatever everyone says, loans are money that will have to be repaid, either by the individual or the taxpayer) coupled with an ability to afford a bigger mortgage will stand them in good stead.

Who knows what will happen. It is quite likely that one will end up overseas (his qualifications are in greater demand abroad) and both are likely to be quite mobile in the early stages of their careers. So housebuying won’t be on the cards for a while anyway.

OPs DD should follow her instincts and preferences. It is OK not to want to get into debt.

One of the major problems with student loans is that by the time the DCs are earning enough to make a sizeable repayment it will coincide with the time they will want to start a family and will have nursery fees to consider. By their early thirties it is not unreasonable to expect two graduates to be earning £45k each. Nursery fees will take a chunk of income, currently about £1,500 pa where I live. To then have to make student loan repayments as well will be costing the graduates about £2k pa each, £4k total each year. That will be a huge percentage of their disposable income.

To put this into context read some of the threads posted by parents with a similar income who are shocked to find that they are expected to contribute circa £4kpa towards their DC's university costs. Many claim it is unaffordable even for a few years but current students will be expected to repay a similar amount each and every year until their debt is repaid. And don't start me on the interest charges.

Cake, my observation is that it often seems to be London parents who take a contrary view. Perhaps we have all gone through those really difficult years where every last penny is going on the oversized mortgage for the family house, commuting costs and childcare, so even though the joint income sounds great, we are left eating jam sandwiches. I want DC to be able to return to London. I worry that the additional "tax" would be the straw that broke the camel's back and made it impossible. Plus after never having had any spare cash our (large) mortgage is paid off. It then becomes relatively easy to defer increasing our expenditure for a few more years, in order to ensure that DC have a clear financial start to their working lives. I suspect it is much harder to cut back on lifestyle in order to help DC through University.

In Scotland (where we live) the interest charged on student loans is currently 1.75% and linked to inflation. The loan company does not operate for a profit.

My son in Scottish but is studying at an English uni so he has taken out loans for his tuition fees and living cost loan at the Scottish rate. He will end up with more debt that going to a Scottish university but the course is a year shorter so he will earn a year earlier which should mitigate some costs.

It seems unfair that the RUK loan company profits off students.

The English loan system means most students don't pay it all back which means students are profiting off the backs of tax payers really. One man used his laon to fund his trip to fight for ISIS for example. You can get your fees apid and £11k to study in London and then never do a day's work in your life if you want and never be obliged to pay a penny back.

Like Need above I wanted my children to graduate without student loans just as my parents had made up the minimum grant to the full grant and let me graduate without debts too in my day. Also I wanted fairness between the children - my daughter's fees were £1k and the twins are £9250. So whatever the fee level I will pay so they are all at zero loans when they graduate.

Our DCs fees will also be funded because we are able to and for us it is the right thing to do.

But another quirk in the student loans funding is the ridiculous amount of money available to those living at home. Home livers receive £7324 compared to £8700 to those living out. University terms are short and all students will be living at home for a third of the year and parents will have to accommodate them. So how on earth some muppet calculated the £1500 difference in cost for those paying rent to those living at home goodness only knows. And I suspect that those receiving this allowance will be least likely to repay so three years of living at the taxpayers expense.

The best off students DD knows have divorced parents and well off dads, who are willing to contribute extra. So their maximum loans and bursaries, based on the mother's income, are supplemented.

DD finds it strange that others assume that because she is from London she should have more to spend as if all Londoners are rich. Our house may be worth more but it is often a lot smaller than the houses her Uni friends grew up in, on the street parking and no garden, and certainly no expectation of en suite..

Luckily she can see the logic in less now, and more when she needs it.

Take the loans.

You never know what might happen, if she were to become disabled a loan would be wiped and the savings would be more use.

As PP said, she may need to pay for post grad training, and set up as self employed, both things that an inheritance could fund.

With the right advice and investments she may be able to make more in interest and premiums than the interest accumulated by a loan.

With the right advice and investments she may be able to make more in interest and premiums than the interest accumulated by a loan.

Not easy nowadays (especially if you're risk averse) but at least can offset a bit.

Well, I agree with your DD.
That 9% “graduate tax” on earnings over £26k or so is really what you should be savings towards retirement. So all these students are starting life having to pay a debt with money that should be funding their retirement.
The primary reason many students never pay off the student loans is because of the daylight robbery high interest rates of RPI + 3%, currently going up from 5.4% to 6%!! And it can easily go MUCH higher as Brexit is predicted to continue to increase inflation and thus the RPI.

They still pay back the cost of their tuition plus some interest...but because of the low repayments and high interest, most students are locked into thus debt for 25 to 30 years of repayments.

Putting the money in a house deposit would only make sense if the value of the home bought or the deposit sitting there increased by over 6% a year guaranteed. You’d only maybe get that in a London home or if your deposit money were invested in risky stocks and you were incredibly lucky.

I’d pay the tuition and maintenance up front if the funds are there.

Needsmore - Having seen DCs living with mummy and stepdaddy in very expensive houses with amazing lifestyles but somehow still qualifying for private school bursaries based on parental income I actually prefer the use of household income. I am constantly gobsmacked by the barefaced cheek of people who think they are "entitled".

Cake, I'm with you on that.

Possibly part of the reason why I dont like the MSE approach. If an individual does not repay, the state, which is the taxpayer, does. It is absolutely not free money.

DC have chosen to invest in a University education. I think it is right that we pay, given we can afford it. One advantage is that they recognize that it is something that is being paid for and that they should make the most of the opportunity, and spend the money they have carefully. I would prefer that taxpayers money went to filling gaps in the social safety net...that net that I or they would need should something drastic happen, or to support those who really need help to access higher education.

And yes the person on a bursary does a daily shop in M&S food whereas DD and friends plan their weekly Lidl shop carefully and cook from scratch. She is getting an early lesson in CF-ery

Putting the money in a house deposit would only make sense if the value of the home bought or the deposit sitting there increased by over 6% a year guaranteed.

PlanDeRaccordement - Please explain how they would buy the house in the first place, if all the money has been used in place of loans? Not everyone has BOMD! How long would it take them to save the same amount, for a deposit, from the savings they make from not repaying the loans.

Eg inheritance of 60k, all used for uni, so nothing saved towards a deposit.

Assuming a salary of 30k, then they are saving loan repayments of about £450 a yr (9% of amount over 25k, not sure if that is exactly correct). Assuming that they have little or no other disposable income, as they are in expensive rented property, then it would take 133yrs to save 60k from £450 a year. Even with salary increases over time, unless they are in London/high flyer, it will still take many years to save that 60k.

Many people, including graduates, struggle to save a deposit as they pay high rent, when the irony is, if they had the deposit, a mortgage is often cheaper than rent. It is often the lack of a deposit which prevents people buying, rather than inability to get a mortgage. Unfortunately the days of 100% mortgages (as mine was 34yrs ago, 2* my salary) are long gone.

It would be interesting to hear from any graduates of say 30, who were in this situation at 18, not now in a high flying job, and with no BOMD, to see what they recommend.

If someone is not ever going to earn very much then obviously they are going to say at 30 they want the money for housing not for university as they will not be paying the loans back.

Even my graduate son who delivers supermarket food on about £22k a year is glad not to have student loans by the way - his feees were £3k a year not £9250 sa he was under the older system. However he is an example of someone who might well not hhve had to repay any of the loan so I "waste" i.e. saved the tax payer and I suppose indirectly saved me as a tax payer, the £30k cost or whatever I paid.

If an individual does not repay, the state, which is the taxpayer, does.

Given that a) the old system had the tax payer fully funding costs, b) university education benefits society as a whole, as well as those who go, and c) when the system changed it was costed on the basis that a large proportion of loans would not be repaid.

All the above means no one should think they 'owe' it to society to pay their costs.

Yes.

She would be crazy to uni it to pay her tuition fees.

Far better to use it as a house deposit.

Titchy, I doubt your point b holds good in the case of all graduates and all degrees, and your points a and c are not evidence against an assertion that if a graduate does not repay the burden falls on the state/taxpayer.

Essentially, I suspect you are seeing the question from a more socialist viewpoint, rather than for a small state conservative position. Fine. But this a political view, not a fact.

But Xenia, how many graduates have a house bought for them? Very very few I suspect? Even getting a deposit is not normal for most graduates.

If someone is not ever going to earn very much - I wonder what figure you would put on this. Probably 100/150k at 30?

Again, I suspect that very few graduates reach this, unless in the highly paid London professions. But not everyone can be, nor wants to be, a high flying lawyer/accountant/inv banker etc in London. From the posts above, even an Oxbridge graduate who becomes a barrister will struggle to reach that salary at 30.

The role that my DS covets pays well, but nothing like 150k. He has no interest in living and working in London, couldn’t think of anything worse! We are not in the position to buy him a house, therefore I think that our advise to save his inheritance for a deposit will be the right one long term.

But each to their own, hopefully Ops DD will make the right decision for her, having taken into account the info on here. For all we know, her parents may have money to buy her a London home, in which case deposit costs are irrelevant.

^Given that a) the old system had the tax payer fully funding costs, b) university education benefits society as a whole, as well as those who go, and c) when the system changed it was costed on the basis that a large proportion of loans would not be repaid.

All the above means no one should think they 'owe' it to society to pay their costs.^

Except the vast majority of students will pay back the cost even if they do not pay off the full loan of cost plus accrued interest. The interest rate is so high that we (graduate plus taxpayer) end up paying triple their tuition costs by the time the loan is discharged at the 25yr or 30yr post graduation mark. The whole system is a scheme to make money off the U.K. government. And 2037 is when the bills will start to come due, potentially bankrupting other government services. The U.K. has created a future economic disaster.

Melvin s mum
“Assuming a salary of 30k,”

That’s the first place where your analysis fails. No one will earn £30k/yr from say graduation in 2023 for thirty years until 2053. Yes the threshold will go up too, but not as fast as wages will increase based on historical data.

“it would take 133yrs to save 60k from £450 a year.”

And second failure in your analysis. Only an idiot saves £450/yr under their mattress or at 0% interest. Those savings will grow due to compound interest plus it’s only £450 the first year that contribution amount will go up every so often with every pay raise or bonus or commission.

I am 31 and have a student loan which will be paid off in the next two years.

Consider the effective marginal rates the additional 9% produces and if they will be a brake on career progression. If I take on extra work I pay 40% tax, 3% ni, about 11% professional indemnity as it is paid on the value of the work in my field, 9% student loan, and generally once transport etc is factored in take home about 25p in the pound. If one passes £100k take home drops to around 5p in the pound until over £125k unless you factor in the effect of losing free 30 hours child care. In which case you are significantly better off stopping at £99k than earning £130k.

The above effects are somewhat hidden if on a fixed salary but if working on a billing basis become problematic. Not having that 9% extra on her marginal rate may well make it easier for her to be motivated to work harder if she is seeing a financial benefit as well as hoping for a career benefit. If she ends up slogging away to see no financial return or being worse off for doing the extra it may cripple her spirit. If she is lucky enough to be able to power through to over £150k or so the effective marginal rates improve as enough extra has been made to make back the loss of childcare, but then the pensions trap starts to bite.

I don’t presently take on any extra work because I am comfortable enough on what I earn and the rates I can get where I am currently based are not worth doing extra for the take home rate. I am very lucky however to be in a position where this will not affect my future career development.

Depending on the size of the inheritance I would look to pay off the interest on the loans annually and then the capital if her career starts to fly.

And I did say that pay rises should be taken into account.

Some people will get high pay rises, but many others, eg nurses, teachers, many in graduate caring professions, eg physios etc, will be on salary bands where they may well reach a plateau of 30-40k. Maybe you should ask a nurse how fast their salary has risen over last 10 yrs?

I agree that only an idiot keeps money under a mattress or at 0%, but even if, as their salary increases, they ‘saved’ 1k a year from no loan payments, then that is not enough to make investment in S&S Funds worthwhile, so it would be in cash savings.

The best interest rates in banks are at the most 2% (I know as we have substantial money held in 2/3 yr bonds, Ready to drip feed into our ISAs, getting < 2% in meantime). £1000 at 2% interest gives just over 1200 compound after 10yrs. Still a long way off a deposit!

So, no it won’t actually take 133 years, but it will take a while. I was trying to point out that saving a deposit doesn’t come easy these days.

You only need to read the money and chat sections on MN to see how hard people have it, even graduates, paying bills and unable to save. It gets worse if they then have children and have childcare to cover, whilst still renting.

I appreciate that not all graduates will be in this position, but many in lower paid graduate professions will be.

Melvins mum
I’m just facepalming over the post you wrote about using a High Street Bank ISA to save and invest. Yes well, if you don’t know how to invest you will not be able to get much interest compounded on your savings.

But then it really only takes 21yrs (not 133yrs!) to save £60k if you get average returns on your £450 and increase your monthly deposit amount annually by only 3% inflation. As in no increase in deposit amount for pay rises due to career progression.

This is also coincidentally how you calculate what you will repay to the student loan company. Of course you may not pay the entire loan off because the interest rate and repayments have the principal growing rather than shrinking. The marketing encouraging taking student loans is genius because most people forget the power of interest, they think oh, a £50k or £60k loan that I will most probably never have to pay off! They think this means they’ll pay back less than £50-£60k but that only the case with the lowest earners. The average earner will pay the most back and the higher earners the second most back. And it will exceed the principle amount they initially borrowed.

After 25yrs repayments, the average graduate stuck at the average salary (adjusted only for average inflation), will pay the student loan company £103,946. Lower earners will probably pay around the £50k cost of their initial loan principle. Higher earners will be able to pay off the loan by paying more and so may actually pay less than the £100k+

Yes, I agree getting a deposit is not easy. But it is even harder with that 9% coming off your wages above the threshold (and after income and NI tax too!) for 25 years with a bachelors or 30 years post graduate degree.

I agree with a PP, to pay upfront is madness

I had a very rich housemate at uni. He took the full loan and put it into an ISA. Left uni with a big chunk of savings and was paying back a very small amount through wage deductions for a few years.

I would never pay uni fees upfront. Use it as a desposit for a property instead. If you earn enough to pay it back you can afford to do so. If not you don’t. And you can always pay it off whenever you want if you end up in a great financial position.

I think it’s very sensible advice. My health deteriorated very quickly in my late 20s and I’ll likely never pay the rest back.