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?

[Needmoresleep]

Bubbles, it’s all about priorities.

We have about zero interest in cars, and can manage quite happily with family hand me downs. We want DC to leave University without debt. If that means a few more years with our old car, and a couple of years with short off peak breaks rather than a summer holiday, so be it.

Our money, our choice.

Again I don’t understand why MN posters can become so opposed to people who make different decisions.

And I personally would never want to buy a new car. Early depreciation is huge, and by and large it has the same functionality as an older one: four wheels and an ability to go forwards or backwards and to turn corners. Am I missing something.

[Needmoresleep]

Send summer,

Arguments for and against inflation www.ft.com/content/6394aab8-e8f7-4c20-b563-6683e7505201

Short term deflation is likely, and consumer confidence is likely to take quite a while to return.

Longer term, and student loans are seriously long term, and the jury still appears to be out. There is a clear group (OK, including my economist DH) who seem to believe that inflation is a very likely results pop of governments printing money like never before.

[BubblesBuddy]

Actually I’m not sure many students taking out loans are thinking about repayments in terms of taking money you won’t pay back. They don’t know if they will or not. Quite simply, for most, it’s the only way they get to university and they don’t make up the rules. They just pay. It should be made very clear though that it’s not a debt in the accepted sense of a credit card or mortgage and decisions about which university students attend should be free from concerns over debt.

Anyone who can give DCs £50,000 instead of loans plus pay any extra required is well off - period: A new car is way cheaper than that. Buy a hybrid!

[BubblesBuddy]

That assumes they earn enough for a mortgage of course! That’s a very high income in London.

[user1487194234]

Mind don't ,we wanted them to be debt free starting work

I understand the Martin Lewis argument though

Fortunately we have funds available to give them a house deposit

[sendsummer]

Needmoresleep
Higher levels of inflation are almost certain to follow from the current huge Government borrowing
What is the rationale for this? Deflation with a decreased RPI and then continuing corrective measures for inflation seem more likely?

It is true that less people will be repaying and the HE will need more support in the short to medium term. It is possible I suppose that they will decouple the repayment interest rate from RPI.

[Xenia]

bruffin, good point. If you are on £100k and pay say 9% of £75k that is £6750 a year paid back - not sure how the interest accrues etc or how much you end up paying back if you borrow £50k for example with 5.4% interest from when I think you get the loan. 50k x 5.4% is 2700 interest a year I suppose and presumably it compounds. I expect people have calculated how much the £50k grows over time. The £6750 a year repayment perhaps is partly interest and partly used to repay capital.

[Needmoresleep]

Unfortunately 30-40 is the time during which most people want to buy houses, get married, have children, start to pay for childcare.

That is the point at which the 9% really bites.

(It certainly did for us. We had no spare cash at all, though I guess we were not super high earners.)

[bruffin]

If your on a 100k to star with you wont be paying the 9% "tax" for 30 or 40 years , a 24 year old starting at 60 will have probably paid back the loan by the age of 40 and a masters by mid 40s and at the moment its written off 30 years after starting to pay

[Miriel]

I agree to some extent, BubblesBuddy. I knew very little about the system when I started - my personal experiences were of knowing people, including family, who overspent on credit cards to buy inessential things, got into debt by thousands with no way to pay it back, and ended up not being able to pay things like utility bills. From that example I told myself that debt is bad in all circumstances, with the sole exception of mortgages, and I was never going to get into that situation. It's an oversimplification, but that's how I felt as a teenager/young adult.

It also somehow felt morally wrong to borrow money with no intention of paying it back, which is what the rationale that if you don't earn enough you don't pay the loan back seemed like to me. It seemed like an attempt to cheat the system rather than a feature of it.

I've studied the choices that today's working class young people make about universities, and the choice to stay closer to home is a complex one. It can be about money, or about closer family and community ties, or culture. It can be a rational choice, depending on how you weigh up various factors. I think that they're probably better-informed than I was, mostly. I'd have definitely fit into the 'very disadvantaged' bracket.

(I'm now a PhD student - can you imagine my shock when I first learnt that it was possible to get full funding for postgrad studies? )

[BubblesBuddy]

I do think there is a big issue with students like Miriel thinking that all the students have debt though. It is not really debt in the accepted sense unless you earn enough to pay it off. It is not the same as a bank loan. Paying it off and more besides is only likely to happen if you are high earnin, such as a city job. If you work part time, have a career break or are just an average teacher or nurse, you will not pay it back so it is not a debt in the normal sense.

If you pay very little back, it is well worth traking the money and there is little evidence to suggest that people from less educationally advantaged backgrounds are not going to university because of perceived debt. They might, however, choose to stay at home instread. They do need educating about how the system works and politicians and various media outlets have not explained this correctly.

I think it is always, therefore, important to look at what else parents could do with the money. Lots of parents wholly underestimate what they need for pension purposes. Lots of parents pay fees when they have very little pension provision at all. Plenty of people think they are well off and then get made redundant. It all must be weighed up, including how your DC are going to afford homes and deposits in the future. We do not talk to friends about what money we have either or how we fund what our DDs have. I understand that but it is worth being very clear what money you need in the future and that you really do have enough in the pension pot not to miss £50,000 per child and that they would rather not have the loan and have the money in a different form in the future.

[Xenia]

yes, bruffin, itis not normal interest., It is 9% on earnings above £26k until it is paid back. If you have say children earning £100k (which is newly qualified pay in London in the best firms- age 24 years and probably will earn over that for 30 or 40 years then the 9% is a big hit. If you earn much less eg never become a head of a school - instead just standard teacher in class room then it won't matter how much "debt" you have as you won't pay much back ever (unless the rules change).

[bruffin]

However I'm very put off by the interest accruing on the debt from day one and keep coming back to the feeling that if we can pay it for him then we should The interest is meaningless really the debt gets written off 30 years after repaying.

DD qualified for NHS wales bursary and it was not worth her taking it.

1. As an english student in Wales she is entitled to very low maintenance loan, think it was only 3k
2. if she dropped out she would have to pay back any fees immediately outside of student finance, so probably stuck with a loan that she has to pay whether she is earning or not
3. She was tied to working NHS Wales for 2 years, if she decided not she would have to pay back grants and fees outside of student finance.
4. Once she is employed and started paying the "tax" it will come out of her wages the same whether she is left owing the maintenance (total about 8K) or the full debt of about (42k). Its 9% if earnings above 25 which at 30k is less than £30 a month

She really wont benefit until long term as she make actually pay of the debt before it is written off after 30 years. If i had the money i would rather be given my dc the money as a deposit on a house first before paying for uni fees.

[Miriel]

I don't have one. I was the first in my family to go to university, and went in my twenties, after having saved up to pay the fees. I lived with family so that I didn't have market-rate rent expenses.

I simply wouldn't have gone if it meant taking on lots of debt.

[Newgirls]

A friend has said they plan to help out with a flat rather than a student loan. I was quite surprised as I imagine most people in their 20s don’t want to be tied to living in one place while the year figure out jobs/relationships etc. Sure you can buy a flat and rent it out but it seemed slightly controlling - to still be involved in their lives in their 20s. Just another angle!

[SeasonFinale]

How refreshing to have a thread where people have done the maths and not just jumped to the but Martin Lewis says …. outcome too. I thought we were missing something but apparently not. Why would I want to pay 9% extra in tax and indeed why would I want my DC too. I do appreciate we are fortunate to be in this position but have learned to stay silent in real life on this point as too many people would like to point out that we are doing it wrong!!

[Xenia]

Yes, I agree with everything in everyone's posts just above. I wanted my children to be in the same position I was (and my parents were) in terms of education paid for - it was almost more psychological than financial for me. Also I was paying school fees of £18k and university was a bit less so no change really and before school fees full time childcare - in fact since 1984 when child 1 was born who now has children of her own, I have been paying quite a bit for childcare, school fees and university costs. I think the end will soon be in sight (as I don't pay for grandchildren) in the next 2 or 3 years once post grad stuff is done.

Any parent reading this thread however need not worry. Most students have student loans, from all income levels of student and I doubt any of them know or even ask about others and if they have them. I know one of my son's friends does not have a loan as he told me and it surprised me as they are not very well off but no one would know who has a loan or not at university. I doubt they talk about it very much.

I agree with the comments above that if you have children going into things like London law or into medicine who may earn a fair bit might well be facing 9% on most of their income at a time when they are paying full time childcare for two children and a high London rent or mortgage so the 9% ends up being quite a bit percentage of your "spare" money in those middle years.

[Needmoresleep]

I am glad someone agrees! The decision we made is logical for us. Other people with similar circumstances will make different decisions which are logical for them.

My argument is that there is not one right answer, instead there are a number of things that can be considered, including Martin Lewis' calculations. What I really object to is the suggestion that there is only one right answer and that anyone coming to a different decision is somehow foolish.

We are not 4x4 people either. Nor do we plan a new kitchen any time soon, etc. We don't get much utility from things. We do get a lot of utility from supporting our children, and from avoiding risk.

We also look at Teslas. Our hope is that our 14 year old family-hand-me-down car lasts another few years, so that the technology is developed sufficiently that we can make a once in a lifetime investment in a new electric car. It should tie in nicely with DD graduating.

[nowaitaminute]

University was free when I attended so I had no loan...(it was so nice to have no worries about it!) I have the funds already in trust for my dc (from GP's) so they are very lucky even though they are not even finished primary school. 🙈

[Monkey2001]

I agree with everything you say @Needmoresleep. We are currently making the same decision for DS. He has been educated in the state system and will be starting medicine this autumn. I am sure he would never want to take a career break to look after children and would only eligible for the minimum maintenance loan, so is in that 20% or so who will pay it back unless something catastrophic happens. For me that is a factor in the decision making.

I would never buy a 4x4 (although the family look longingly at Teslas!) We tend to save rather than make frivolous purchases. You are absolutely right that different factors affect different people, but this forum is for throwing all the factors you want to consider in the frame.

[Needmoresleep]

If your DC, male or female, is the sort of person who is likely to take a career break to raise their children, it is unlikely to be a financially wise decision to avoid a loan.

Again this is another unknown. A DC may have a clear idea of what they want from life. Three years at University, ten years of career, then settle back, have a family and, eventually, an interesting, albeit low paying local job. So far so good. Except the partner loses their job, or they split up, and the DC really, really needs to earn and decent wage in order to keep the roof above their heads. Suddenly that 9% additional tax really starts to bite.

Its sort of the same point cake and I have been making around the utility of money. Which ever way the numbers add up, money has a different utility at different times in our lives. So some parents may have spare money at the point at which their DC go to University, and may choose to use it to pay their DC's University costs, rather than say, buy a flash 4x4. That money has relatively low utility.

DC then hit a point in their lives where they need every last penny of earned income. The utility of not being taxed an additional 9% is very high indeed.

30 years is a long time and all sorts of unexpected things can happen. I like the idea that DC will be debt free. It may or may not prove the best financial decision I ever made, but when looking at wider utility, I think it will be the right one.

Higher levels of inflation are almost certain to follow from the current huge Government borrowing. The costs will also have to be paid somehow. I don't know if earnings limits are linked to inflation, because if they are not, I would anticipate this being as a form of fiscal drag, either as a result of the current crisis or a later one, so the Government can squeeze money out of people. (Though not to an extent that having to repay loan becomes a disincentive to work.)

In 30 years there are an awful lot of unknowns.

[Monkey2001]

One thing to add to this. Martin Lewis is right that it should be a binary decision - either borrow as much as possible or nothing at all.

Whether the student ends up with a debt of £60k or a debt of £50k, most of them will pay back the same amount, the extra £10k plus interest will be part of the balance written off in 30 years.

If your DC, male or female, is the sort of person who is likely to take a career break to raise their children, it is unlikely to be a financially wise decision to avoid a loan. If they are more career focused it is more likely to be worthwhile.

Interesting point about the inflation rate going up. Mostly that will just mean a bigger write off for the tax-payer to fund, but high earners would lose out.

[Needmoresleep]

I agree cake. No amortisation schedule here, but a memory of how broke we were with two young children and a new London mortgage. Loan repayments on top would have been the final straw. Hence the instinctive desire to pay costs up front.

In addition there is the issue of independence. As parents you do your best to raise and educate DC. After that it is up to them what they do with their lives.

Paying till they graduate and then letting them launch seems simpler than then dangling the incentive (?) of a house deposit over them. Will there be conditions attached. What if one DC is in a position to take on a mortgage, and the other is not? What if you really don’t like their partner or other life choices? What if, as it typical in London, the house buying has to wait until you are established in a career? I know DH would have felt awkward taking money from his parents when he was in his 30s.

The further London wrinkle is that DC tend to boomerang. They may not want to return home, but London is often a good place to launch a career, the City is what they are used to, and the cost of renting is such that a childhood bedroom starts to become more attractive. If DC return to London, their deposit will have to come from a combination of saving on rent, saving on not repaying student loans, possible inheritance from grandparents, and for some, money available from parents downsizing. As a parent I have a very selfish interest in my children, and future grandchildren, being able to afford to live in London.

(On the other thorny subject of adult children paying rent, we would probably take the approach of not charging if we knew they were saving.)

Again, though the decision may be informed by financial predictions, there are a whole load of personal, behavioural factors to take on board. Plus lots of unknowns. Will the massive current Government borrowing effectively be paid for by rampant inflation? If so Martin Lewis might well revise his figure to suggest paying up front rather than 9% of earning into the foreseeable future, will be a better investment for a wider group. Will a future mum find the prospect of loan repayments, on top of child care, commuting and other employment costs, acts as a disincentive to returning to work, going full time, seeking a promotion, or adding to pension contributions. Paying up front means you never have to think/worry about it again.

[cakeisalwaystheanswer]

I did a full amortisation schedule for student debt a couple of years ago using actual average salaries of people with decent city careers but not high flying ones. The biggest problem to me was that the repayments hit hardest in the 30-35 age group when graduates have started to earn decent money but are also likely to have young children and nursery fees. The impact on disposable income of repaying loans then was huge. I think this may be something the repayment scheme will need to address in time because it's another nail in the coffin for women's careers who will be tempted to work PT below the threshold and only pay PT nursery fees.

[BubblesBuddy]

This is a projected repayment table from Martin Lewis. It assumes working full time for 30 years and not taking career breaks or working part time.