Student loan; does everyone have it?

[Suki2]

DS hopes to go to Uni in September. We're in the very fortunate position of being able to finance his degree and so I don't know if he should take a loan out or not. What do you think?

I won’t want my children to have a student loan unless they absolutely have to

Read money saving experts opinion. Very enlightening

Old thread: www.mumsnet.com/Talk/higher_education/2315868-Is-it-a-good-idea-to-pay-university-tuition-fees-off-upfront

Unless money is no object, it would be better used as a house deposit. Yes paying a student loan back is not the best, but it will only be ever paid back if he earns enough.

Yes most people have it. I graduated a few years ago and while it can be scary to think about the amount of debt accrued, sometimes you're better off taking loans than paying upfront.

Student loans are only paid back once you earn a certain amount - I believe it's over £25k if you start uni now. And you will only pay back a fraction, however this gets higher the more you earn. In my case, I pay back around £40 a month which I don't think about. I will never pay it off, and the debt gets written off after a few decades. It is not something people could lose their homes over.

However, if your son is likely to get a very high paid job, it may be worth paying upfront. In my case I will never pay back what I borrowed so it wouldn't have been worth paying upfront so it really depends on what the degree is and earning potential.

Its a waste of money paying upfront if your going to be a low - medium earner

I agree, I think it would be a waste on uni. The student loan will trickle out when he earns enough. Use it for something else or save it for house deposit etc 😊

Everyone had a tuition fee loan, a lot had it for maintenance too but not all- I didn't as my parents supported me and I worked throughout all the holidays (and during term time too)

It depends.

On a strict financial basis Martin Lewis is probably your man. However most people don’t make spending decisions, on anything, based solely on the basis of an accountant’s advice. (My accountant wishes they would. He regularly tells clients they can’t afford to divorce.)

Behavioural economics comes into play. How much do value:

a) money now versus money later, ie your personal IRR. (This assumes you have the money now.)
b) what satisfaction would you gain from having your DC start life debt free. For some it is a case of wanting their DC to have the same as they did.
c) how do you view the state and state funding. Some people prefer that the state has the money to spend on other pressing social priorities, and prefer to go it alone. Others see it as something their DC are entitled to, so not an issue.
And so on.

On the economic/Martin Lewis front, a lot depends on likely future earnings. Even ML suggests the answer is not clear cut for medics. There is also attitude to risk - who are these loans going to be sold onto. What happens then. I have also spotted a divide between Londoners and others, with the former aware that if a young person wants to survive in London, they are probably going to need every last penny of income, like their parents did, and the deposit for a house can wait till the parents sell up.

Also importantly, it depends on your DC and how reliable they are with money. We pay. We also drive a 14 year old car which won’t be replaced until DC have finished University. We were also planning a staycation this summer. (We are still planning a staycation!). And we can wait another year of two before doing up our house - we have already waited 20. DC know this and have been careful with the money we give them. Indeed they get less than others from less wealthy backgrounds, and have still been able to find the money to replace phones and computers, go on trips to visit friends abroad etc. If they were likely to be spending it, and more on drink —or drugs— we would have been less interested.

So for us it is a win. DC know the value of money because they know where it comes from. They are likely to be highish earners anyway. And we get the satisfaction of them entering into the adult world debt free. I also like us operating as a multi-generational unit, who support each other. We have the money, and this is how we choose to spend it.

So no right answer. Your money. Your priorities.

We like our DCs to start their careers debt free. The % income that would go towards a student loan will be saved towards a pension. The money paid back every month doesn’t seem like much, but it adds up over the thirty years of payments.
Home ownership is not as much of a cultural icon for us, there is nothing wrong with renting your whole life if you want to. It adds flexibility and mobility. I think it’s much better to focus on having a good guaranteed income stream for your retirement years than a house paid off because with the second scenario you are trapped in that house. It becomes a death house. But if you have good income in retirement you can move to be by your children/grandchildren, go live abroad for a year if you want to- you have more choices.

Home ownership is not as much of a cultural icon for us, there is nothing wrong with renting your whole life if you want to. It adds flexibility and mobility. I think it’s much better to focus on having a good guaranteed income stream for your retirement years than a house paid off because with the second scenario you are trapped in that house.

Not sure if you live in the UK, but Paying rent on a pension is not desirable at all - here in the south east it costs at least £1k a month to rent a small house, and flats aren't much cheaper. You would need to have a very good pension to be able to afford that, unless you are on benefits and then you may not have much choice where you live.

You are not trapped in a house - you can always move. If you are renting you could be served notice at any time if the landlord wants to sell.

Plus the amount people spend on rent will add up to the amount spend on a mortgage throughout their lifetime anyway - with nothing to show for it.

Obviously some people can't buy for various reasons and renting will suit those who want to move around more easily, but there's no doubt that renting in retirement would be awful unless they have an above average pension. And if they were earning enough to have a pension that large, surely they would just get a mortgage

No, my twins at Bristol do't (nor their older siblings) as I paid instead. I am very glad I did. Eg their older sisters are London lawyers so would be paying the 9% graduate tax on a fair bit of money but aren't and at least one of the twins plans to be a lawyer too (he starts 2 years post grad in Sept). Whilst it is true their older brother does not currently earn over the paying back the loan figure he is still very happy not to have the student loan complication either.

So if you are only ever going to earn £30k a year and thus (unless they change the rules later) pay back say £500 a year or you are in a family where women serve men and stay at home and earn pin money or you will only ever work on a low wage for the family business or want to use the loan to fund going off to fight for ISIS as one British man did then the loan might be okay (and yes most people have the loan but not everyone by any means) but if you expect to earn say £50k - £100k + and parents can afford to fund you without loans then I would say fund the student. I have also been able to help the children with money towards buying a first property too so it was not either or.

Unless your child will be heading to a profession with high earnings, you are very old (had child in your 40s) and have a vaste estate such that you've plenty of cash, then should you both die said child would have to pay 40% inheritance tax on your estate...then yes.

Otherwise no.

So if you are only ever going to earn £30k a year

Some people would love to earn money like this

I take the point you're making, but do try to phrase a little more compassionately

Cats ears,
If you own a home but have little pension income, you are most definitely trapped. You cannot afford to pay rent, so you’d have to sell/move/buy. The costs of selling and buying (commission, fees, taxes) would mean unable to buy another equivalent home outright. So each time you move, you are forced to downsize or buy a home in a cheaper area. With little pension income, you cannot choose to rent instead and you would not be likely to sell/move/buy more than once over your 20-30yrs of retired life. Of course, you could rent out your home and use the rental income to pay your rent, but who wants the headache? And you’d not get anywhere close to 100% of the rental income because of agent fees and taxes anyway.

Yes, it would be a very good pension income to be able to rent. One that produces an annuity that is inflation indexed so will increase annually to keep up with inflating costs of living. But these are not unattainable if you start saving early and often. My DCs will have extra money to set aside towards this while other DCs with student loan repayments will not.

Yes, renting suits those who want to move more easily and to do it, you have to have a higher pension income. The idea that if they have a higher income, then surely they would buy is not necessarily true. It’s cultural to have mortgages and such, not everyone wants that. You trade freedom for security by going the route of picking a death house to buy and live in ‘till the end of your days’ as a pensioner.

As “for nothing to show for it” so what? Life isn’t always about leaving behind a heap of bricks that would probably have to be sold and divided up between heirs anyway (with fees chipping away at it, not to mention the inconvenience of clearing a house...been there as an executor and it’s not easy). Much better and easier imho to leave behind a big account balance that can be easily divided up between heirs.

Too, if you focus on creating a big pension income and you get to retirement and have changed your mind and do want to buy a death house you will have enough money to buy it outright with cash and then have enough left over for a small pension income.

The other way, focusing on a house and neglecting or delaying pension savings locks you in to having a death house from the start. You have to own a home outright because your pension income is too small to pay rent.

It should be called a tax not a loan but this government is so fixated on low taxation that they won't be upfront about it. I am a great fan of Martin Lewis on student finance, I refer a lot of parents to it as part of my work as a progression adviser.

CHatterbugmegastar - if people are going to borrow state money to fund a degree one would hope they are indeed aspiring to earn at least £30k though.

I agree £30k is a good salary for many non graduates. My (graduate) son who was a post man for 3 years and now a grocery delivery driver earns about £22k and presumably will earn that for life - his choice however. He had loads of other options and he is very happy but also glad he got a degree and has no student loan. Nor am I sitting here kicking myself about having paid his then £3k a year fees. It was less than his school fees.

For the 10% of sixth form parents who pay day school fees or whatever the % is continuing to pay what is a similar amount for another 3 years is not too difficult if they were paying it out of earned income as most people do.

I should add that at Bristol my sons are amongst people with all kinds of income levels and everyone is very conscious of people's different situations. Indeed some without any loans have the least money as parents give them a tiny allowance - it is not the case that those with student loans are less well off. In fact if your parens earn nothing you get much more student loan than if your parents earn a lot and the rich parents are not obliged to make up a minimum maintenance loan of say £4k a year to a full £8k so a "poor" student can actually have masses more money than the child of a rich parent. It is one reason Labour regards the loan scheme as a huge success as it is has particularly made it much easier for the children of the less well off to get to university.

It may partly explain the difference in thinking between London and not London parents. Outside London £30,000 may be seen as a good salary for someone with a degree and several years experience. In London this is less the case.

I paid upfront first year tuition for my three with the intention they wouldn't need loans if they did a bit of part time work along the way. They didn't. May as well have taken the lot and come out with only a slightly bigger debt (which they won't pay off anyway).

And yes, the "poorest" children often had the most cash because of grants whereas the ones in the middle, whose parents struggled to make up the money, didn't have much to spare.

No. I started on a YTS (apprenticeship) company paid for me through BTEC, HNC, Degree and CIMA. All studied part time whilst working full time. Bought a house at 19. No debt xx

M, I agree and even Wales (everyone receives more grant/gift money there than England) is different and Scotland different again. I have not been that happy one of my sons has at various times been making loans to friends as I don't think it helps personal relationships but they all seem to be manage it okay so I suppose I just have to leave it up to him.