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’m just starting to look at the whole student finance thing as my DD is in a similar position to that of OP as a result of losing her DF and DGF within 6 months of each other. If she takes out a student loan - is she permitted to pay it off once she starts working or does it not work like that- i.e do you have to repay from salary if you take it out?

She will have so many options after university if she has money behind her. She can move anywhere for a job, she could do an internship and afford to live - if she wants to get into some highly competitive industries then it’s difficult to get into without doing those things. When I was in my early 20s I got a job at a company where my dream job was based. I did freelance work for the publication, I schmoozed, made contacts, the editor told me I’d be top of the list when a staff position became available. Then a young woman started as an intern - she did the job for free for three months so of course when a job opened up she got it (she’s now a very successful senior staff member for a national broadcaster apparently). Once she started the job the next intern arrived... I couldn’t compete with the people who could live and work for free for an unlimited period of time. This happened multiple times while trying to get into that career before I gave up on it.

She could use it as a deposit for a property and massively reduce her living costs, enabling her to take the best job for her career progression, not necessarily the best paid job to start out.

If she goes straight into a highly lucrative role then there’s nothing stopping her from paying it off within a year or two once she’s established.

Or she could meet someone and have a child and decide to take some extra time off. Or she could fund a postgrad. Or she could support herself after redundancy, through a period of unemployment, or she could become disabled, or a million other things. She could decide to spend a year abroad and learn a language.

Money is opportunity. I wouldn’t hand over tens of thousands when I didn’t have to. Hopefully she will get a great job with a good wage and pay it all off. That doesn’t happen for all graduates.

I think having RTWT and am now doubting everything I thought I knew about money you should find compromises.

Take the loan for fees but pay own living costs perhaps.

Take the loan for fees and living costs and clear the interest annually

Use some of the inheritance now, in a smart way, to earn income

Re-evaluate regularly.

My gut feeling is take the loans perhaps clearing them ASAP once graduated because you don't know why the future holds.

Your DD might hate the course and switch to one with a lower earning potential.
She might get pregnant and take a study break
She might fall in love with a multi millionaire or win the lottery!

Need more sleep - of course the burden falls on the tax payer. I'm just pointing out that's fine. Who goes to their NHS appointment and feels the need to reimburse the tax payer? Uni costs are the same. Gov decides how to spend our taxes, it's decided some on uni. A lot less than it did...

And yes any argument that says x is good for society is a global statement of x, a macro view not a micro individual view. (Although most unis are the second highest employer locally, benefits all round.)

Yes cocopops it can be paid off at any stage. Which is what this may well come to for my DD, if she can't persuade this trustee. The really unfair thing is how interest is accrued whilst studying. I suppose that's to stop people doing as in the old system, and taking loans in order to make the money work for them and make a slight profit.

Another subject entirely, but anyone setting up a trust... do think about how sensible it is to have someone who doesn't know the child and is doing it purely as a professional obligation in a trusteeship role. And if you decide to do it, try getting someone with some sense of how to work with a young person balancing grief and guilt and teenage hubris.

Presumably your dad will need to do the LPC which isn't funded so I would take the loan and keep the money for law school etc after her degree. There will be lots of additional costs when she starts training.

Isnt the LPC going?

Her idea is bonkers.

So many want to be barristers, but very few succeed. Even those who do sometimes earn a very average amount.

Surely putting the money in a house means that she will have greater financial freedom to develope her career ( barristers are self employed).

And it's not sexist to suggest she may have children, and that her career will be impacted.

A student loan is not classed as a debt when buying a house only the monthly student loan repayment when looking at monthly out goings.

It's written off after 30 years and if def best looked at like a tax.

Repayment is only 9% of anything earned over £26k (£25,750 I think) so it's never worth paying it up front.

@PlanDeRaccordement

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.

Where on earth did I mention a high street ISA? Investing is one of my hobbies, I have never, and would never, have a high street ISA.

What I actually said was we have substantial money held in 2/3 yr bonds, Ready to drip feed into our ISAs

if you don’t know how to invest

Well, I must be doing something right, as DH and I have substantial money in S&S ISAs with a major investment company, plus a large share portfolio.

Same with the kids. They have S&S ISAs and LISA.

DH and I put the maximum 20k/yr each, monthly, into our S&S ISAs, however we have other savings and we have to hold that somewhere whilst waiting to drip feed it. We both max out pensions from earnings, before you ask. Same with kids and their inheritance. They can only invest 20k a year, rest is split across 2/3 yr bonds.

I think most of us know how much students will repay if they pay for full 30 yrs, but as many have said, paying upfront when no one knows what life will throw at you, is not the most sensible decision. I fully expect DS to repay his loan early, but that will depend on his salary and how much houses cost in whichever area he settles in.

@SinkGirl - you talk a lot of sense!

Surely putting the money in a house means that she will have greater financial freedom to develop her career ( barristers are self employed).

This keeps popping up again, so just to reiterate what I said earlier, fees will not use up all or even most of her inheritance. She didn't inherit enough that she never needs to work (thank God) but enough that if she wanted to go off the rails in a big way she could, which when she was younger was one of my fears. My other was that it might make her money-hungry, always chasing more. I feel very lucky that her priorities are things like her education and an interesting career where she can make a difference.

She doesn't want to buy a house very young - College living is integral to Oxbridge, and after that she wants freedom in where she lives, trains, travels, etc.

She's incredibly lucky to have that freedom through the money, but not for the trauma in our lives that lead to inheriting so young. As such, I wouldn't even consider supporting this plan (and don't think she'd suggest it) if it was all the money she had, or would every have.

What I've come to realise from this thread is that she could end up losing out financially from not taking loans/paying them off very early, if say, she's a low earner for 40 years. But that there are immediate upsides for people of a certain mindset, of not having this student debt/contribution/tax hanging over her, and the sense of self respect from paying her own way.

@SummeryNights - I agree with what you say about trustees.

My DC barely knew the deceased, it was a distant relative. His family solicitors were executors/trustees. No minimum age was specified, so it was 18 as default.

DS was just 18 by the time the money was distributed, so no problem.

DD was approaching 16. Fortunately, as she was the only one of 10 beneficiaries who was still under 18, the solicitor called her and us in to discuss DH and I taking control of her money until she was 18.

We, and they, realised that keeping them as trustees for one pot of money for 2 years would cost a lot. After some difficulty opening an over 16 a/c on which we could be named, the money got transferred over. Officially we were trustees until she turned 18, but in practice we just kept it in accounts with her and my name on.

Luckily we are well versed in investing, the kids already had junior S&S ISAs, so they carried on and became adult ISAs at 18. They are now drip feeding the money in monthly, holding it in high interest bond accounts in meantime.

We have discussed how lucky they are since the day they got a copy of the will/accounts and stressed how they will be able to buy property much earlier than friends.

I think inheriting at such a young age is a massive burden on young shoulders, and that is without any grief, as mine didn’t really know the deceased. They do need help and guidance from us as parents and will do for the next few years.

It sounds as if your DD inherited a substantial amount. My DC got a decent sum, which is growing significantly with sensible investment, but won’t go that far when they decide to buy property.

I think that, as others have said, having money gives options, and as she is still in Yr 13, she has no idea what the next few years will bring.

This could be very outing but one of the other relatives who inherited alongside my DC, was in the middle of her degree when she got the money. Unfortunately she has since died very suddenly.

I understand that she did use some of it for travelling and living, and the rest just went to her parents.

No one knows what the future holds, an illness or accident can change life in a second.

I think that most parents paying fees are wealthy enough for it not to be a big deal and have other funds to assist with house purchases etc later in life. My DCs all attend/attended private schools and £9k is actually less than a terms fees at one of my DC's school. It never crossed our mind to apply for loans, we can easily afford to pay so we wouldn't expect the taxpayer to fund our DCs education. Similarly none of DS1's school friends have taken out student loans.

I calcualted an amortisation schedule for student loans when they were first introduced because I was shocked to hear people in the media laughing them off as a student tax. It was then that I realised that repayments would hit graduates hardest at a time when money was most scarce and I was very angry for them. I still am very angry. Nobody deserves to start their working life with potentially up to £80k of student debt at an extortianate rate of interest.

( The LPC course is for solicitors. Barristers have a different course for that year although like the LPC is changing so worth checking on the bar council website).

Cake, I agree. The £18k x 2 school fees I was paying is about the £9250 plus rent/halls plus allowance I pay each of mine at university.

As most people don't pay loff the loans and the repayment is 9% of salary over £26k approx the interest rate in a sense is an irrelevance.

From what I remember of the spreadsheets, changes in the interest rates and term of the contract (eg if they changed it from expiring after 30 years) would affect someone with a solid but not exceptional professional career who would under current terms be predicted pay it off towards the end of 30 years.

If you take the loan, you pay the least if you're either (a) a high flyer who lands a brilliant starting salary in the city and can pay it off quickly or (b) someone who never gets above the threshold - with a curve upwards in between.

A comment re it being a graduate tax - that's what it is effectively for most, with a clever twist that you can't escape it by emigrating. And while it does lead to pretty high combined rates, it's still lower than what pertained when I started work in the mid 80s.

I wouldn’t consider paying the fees. I can cover fees for my 3 with no issue whatsoever but it makes no sense. I’ll cover living expenses for them so no other loans but It makes absolute zero sense to me to pay upfront. FWIW I don’t know anyone, however wealthy they are who are paying upfront. Some many consider paying the fees off later on but generally we are all of the view that if they’re going to be high earners, which we expect they will be, they are better off paying the small monthly fee and using the lump some for something else such as towards a property.

I’m a trustee for a dear friend’s children. We have faced this decision twice now. The other trustee (an actuary) and I really struggled with what to do given the size of the trust and the children’s high earning potential.
In the end we decided not to pay upfront. If financially it turned out to be the wrong decision there would be the consolation of the beneficiary being a high earner. It helped that we have a strong relationship with the children and we had an open discussion where all points were discussed freely and with respect.
Good luck to your DC. Whatever is decided their future looks bright.

To answer the original question - no. However life is unpredictable and you frequently cannot answer the question in advance. So it's a gamble.

For most people it makes no sense to pay up front. However the situation your child is in, where they can fund both a deposit on property and avoiding loans and have a good prospect of getting a well paid job on graduation, is one where it can make sense.

My child's partner has paid off their student debt after graduation because they are well paid. Paying up front would have been sensible for them if they had had the cash.

For older people paying a child's reasonable expenses can save them 40% in inheritance tax, worth doing if you can also fund their house deposit. Those who do that wont always choose to advertise it but I imagine quite a few "children of millionaires" have their expenses covered from their trust funds.

I know lots of people who have paid up front, university fees are far less than school fees and generally these are families who will also be able to help with house deposits. Pupillages for high fliers are generously funded, we know of a woman student in her last year at Oxford who has been offered £50K pa. DD is not as high a flier but her initial salary is still above the threshold. People saying they have already paid off their loans must be older than the current crop of students whose fees are £9-9250 pa as fees at this rate have only been charged since 2012. Any student who started university in 2012 would have finished at the earliest in 2015 so only have been working for 4 ½ years.

As she wants to be a barrister take the loan so she has the £££ to live on for the BVC, pupillage and first few years of "earning" aka awaiting payment. Most barristers start their aged debtor listing at 6 months and break down by 3 monthly increments!

Your DD sounds thoughtful and sensible, so I would be supporting her. Our older DD 28 got a good Cambridge degree (not law) and is now earning 6 figures in a magic circle law firm. She had lower fees, but has now nearly repaid her debt. The money we'd saved for her she chose to keep and used as a flat deposit. The interest rate on plan1 loans is not so bad. DD2 is in her 4th year now. Because of the outrageously high interest rates and higher fees, we decided on no loans. Who knows what her earnings will be, but it seemed like the right decision. The impact of high compounded interest on the overall amount due if you do have enough to pay it is shocking. (DH is an actuary.)

I would never pay up front. It took me just a few years to repay my student loan at a magic circle law firm. Certainly 3-4 years before I became a mother at 31. And you can overpay.

It took me longer to build up the deposit for a house and then my mortgage is lower than my rent for the equivalent property would be so it is a big advantage to be able to get on the housing ladder early really and then use saving to repay loan pronto.

Ps I was oxbridge too, did 4 year law with LSE in days when you had slightly lower fees, but took the support for living costs for four years

@thetoddleratemyhomework you would have had far lower loans, if you are over 30 you probably only paid £1000 a year for tuition, completely different to a student starting in 2020 who will be paying £9,250. Interest is now charged from when you start rather than being deferred until you graduate, it is also higher than it was previously.

I had a lump sum although I went to uni before fees were introduced. However, the lump sum allowed me to buy a property. I would far rather have had a home that was mine than no student debt - after all, the interest on a student loan is very low and the difference between rent and mortgage repayments can often be high. I think financially you are very quickly better off to have spent the lump sum on something like a house rather than be saving for years to get the deposit together whilst paying extra on rent.