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?

[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'm sure students do aspire. I'm sure everyone on minimum wage also aspires. It doesn't mean that the reality of a £100k plus salary will be feasible though.

[cakeisalwaystheanswer]

I think needsmoresleep may have a point about the London divide. I often read on MN about £30k for uni fees being much more useful for a house deposit and wonder where on earth people live. I expect to put a zero at least on that for my DCs to buy.

[Needmoresleep]

Cake, yes. There is no one right decision. I had always wondered why what was that our automatic decision was so at odds with the advice of others, including those who clearly enjoy much wealthier lifestyles and who then happily top their DCs loans by significant amounts.

We were lucky, we bought our house early, so relatively cheaply and are at the end of the mortgage. The downside is that accessible schools (we were not eligible for religious schools and neither DC got into a Grammar) were poor so we had to pay.

As we are used to not having much disposable income, we suddenly had spare money when we were no longer paying fees. We are more than aware of how difficult it can be for those starting their careers in London, even if starting salaries are higher, to achieve a decent standard of living.

And we want our DC to be able to make their careers in their home town should they decide to.

It was sort of a no brainer to help them. Londoners will earn more, earlier, in the same professions as elsewhere. Their living costs will be higher. As far as I know there is no London weighting on loan repayments, so those repayments will be more likely to kick in and to kick in earlier, whilst they will need more disposable income to achieve the same standard of living as their peers elsewhere.

And yes, I hear friends elsewhere talking about their graduate children in their mid 20s buying their own flats. Fat chance for mine. Both seem headed for the public sector (indeed will probably end up as fifth or sixth generation Londoners working in the public sector). The deposit, if it does, will have to come from us downsizing and them remaining frugal and mortgaging to the max. (On the latter, no student loans will help.)

Everyone's circumstances are different. Empty nests have meant a chance for friends to up their pension contributions, or pay off mortgages, so less money to help student DC out. And obviously having one or two rather than three children makes a difference.

Martin Lewis is an accountant. There is nothing wrong with his advice, except that it needs to be tailored to your circumstances and priorities.

[returnofthemollymawks]

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

That is the fault of parents who are rich being selfish and not a problem with the loan system.

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.

Then it's been a raging success.

I have over 30k of student loans which I will never pay off. As I work for the government and they will never pay me above the threshold even for full time work I see the fact that I will never pay them back as wholly acceptable. If they were to pay me a living wage then I would have no problem in paying them back.

[Needmoresleep]

Molly, it's not that simple.

The least well off students will also often get bursaries. Something that made all the difference to one of DDs friends, who was also very frugal. At the same time though, we also know a couple of kids on bursaries with divorced parents where income calculations are based on the mother's household, yet the affluent dad is able to provide substantial (guilt?) top ups leaving the student very well off indeed. (One runs a car, the other buys lots of drugs.) A third is slightly older as he had a genuinely chaotic childhood including living in shelters etc, but also has skills, so loan, plus bursary, plus savings and casual income gives him a very nice lifestyle indeed.

[Xenia]

returnof, I agree with all your post. For my own 5 children I have been happy ensuring they graduate without debt (that also includes over drafts and personal loans - I only fund them on the basis they take on no debt of any kind at that stage).

It is certainly up to those few parents who can afford to pay more than just to top up the minimum maintenance loan to the maximum loan to choose. Plenty of parents take a different view from mine an think if their child has to take on a loan they will take their carer more seriously and make better choices. I can understand that point of view too.

[VanCleefArpels]

We have self funded two students entirely mainly because it was cheaper than the school fees we are used to paying and it enables them both to graduate with no “debt” (I know it’s actually an additional tax!). I know all the arguments about not paying but we felt that as we were able we should not be a burden on the state. The student fees black hole will only get bigger and ultimately it will be the general tax payer who will end up paying.

[returnofthemollymawks]

Needmoresleep

The least well off students will also often get bursaries. Something that made all the difference to one of DDs friends, who was also very frugal. At the same time though, we also know a couple of kids on bursaries with divorced parents where income calculations are based on the mother's household, yet the affluent dad is able to provide substantial (guilt?) top ups leaving the student very well off indeed.

My own child got a bursary, lived frugally and saved. They run a car but only because they worked for a while as soon as they were 16 and saved up as much as they could. They did have the advantage of the first year rent paid for them thanks to an investment of £20 a month from birth to age 11 but after that they were financially on their own because of not having the cash to give them, they knew they had to save up to pay the rent for years 2 and 3.

[Sophiesdog2020]

Op,

The problem with asking about uni fees on a forum like mumsnet is that there are such a wide range of people, with different finances, different lifestyles and very different expectations for their DCs futures.

As Need points out, if you have brought kids up in London, paid school fees etc, and expect the kids to return to London, then paying uni fees too is not out of the ordinary.

Similar with Xenia, who very much expects her DC to return to London and have corporate jobs, and who, unlike most others, can also afford to buy her DC houses.

Then you get people who earn enough to pay towards the maintenance loan, but can’t afford to, so paying fees is a pipe dream.

Many many uni students don’t originate from nor will end up in London. My DS is one. We are NW based, and whilst he could end up anywhere in UK in the career he would like to pursue, it won’t be London. He hates the place.

He could have afforded to pay his own fees from an almost 6 figure inheritance he got at 18, but we suggested that he save that for a house deposit.

We could also have paid fees, but, to keep things fair, as his sister is not sure if she will go, we decided to use the money to top up their inheritances. Depending on where both end up, they could have a 50% house deposit, probably more in the north. DS could of course use some of his deposit money to pay down his loan, esp given that loan interest is likely to stay higher than mortgage interest.

Op, you need to look at your own and your DS circumstances, to decide what to do. What will he study, where could he end up, what sort of career will he pursue - high flying corporate, low paid vocational, or something in between?

Do you agree with PlanDeRaccordement that renting all your life is OK, or do you want them to be home owners as soon as possible? We are very much the latter, as we had houses at a young age and, as we approach retirement, would hate to have the uncertainty of being in rented property.

Many graduates will never earn a high salary, especially those in the health professions, but will still have a worthwhile career. In that case, having a ready deposit makes more sense than being loan free.

Can you afford to help with fees and the house deposit?
Does he have siblings who you would want to treat the same?
Do you have sufficient to have an enjoyable retirement if you help all children in same way?
Would downsizing to help them on the housing ladder be an option, as Need is planning?

[Suki2]

Thanks for all your messages! So much to think about; agree Sophiesdog2020 that one answer can't fit all. I'm still mulling it over with DH but we're tempted to pay the fees. We can afford to do this for him and his two siblings and still have a reasonable retirement without the need to downsize. I'm partly swayed by the thought expressed by Xenia that he may take his career more seriously if he takes on the debt. 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.

DS would like a high flying corporate career but I feel that whether or not that happens is as much up to chance as anything else. His siblings are less likely to pursue that route but we would definitely want to treat them the same so we'd be committed to paying for all three. I'm also thinking that if any or all are in the position of not securing jobs where the debt would be paid off we could see our payment as being a contribution to the State. I"m happy with that.

I find it difficult to focus on the issue of giving money to help the purchase of a house or flat; I'm only just getting used to the idea of DS leaving home! I'm anticipating more studies after his degree; maybe the law conversion, so that would be some years away. We're not in London so house prices are not so bad in our area but we're not really expecting him to live near us either; I think he'd go where the work is. So we'll cross that bridge when we come to it.

[bushhbb]

Unless money is no object, it would be better used as a house deposit.

Have to disagree... I'm saving my maintenance loan for a deposit. That's £30k cash when I finish university.

Student loan is not like other loans, it's more of a tax than anything, many people will not even pay it off in full in their lifetime.

[NotMyUsualNameNoSiree]

I didn't have a loan, a mixture of a kinda grandmother, and me working part time. I've always been quite glad.

DH did have a loan, he finished paying it off two months ago, he was 40.

To be honest, most people have them, it wouldn't be a severe comparative disadvantage - but if you don't need one, I probably wouldn't opt for him to have one.

[NotMyUsualNameNoSiree]

Though the idea of taking it, not spending it and saving it for a house deposit sounds tempting. I'd have felt pretty mean taking my grandmother's money while squirrelling away the loan-cash.

[CorianderLord]

Most people have it, my DPs parents paid for his loan and he likes not having one but it hasn't affected my credit score and I don't really notice it being taken from my salary. It would be better to pay for a house down payment if it's one or the other.

[MarchingFrogs]

There must be the odd student whose parents decree that they are not to take out the loans, but who - being aware that it is the student who applies for the loans; they are in the student's name, they will be nobody else's responsibility to repay and no input is required from anyone else if only the non-means tested portion of the maintenance loan is applied for - applies for the loan anyway...

[Sunny345H]

I took out the full loan I was entitled to and have never had to pay back a penny due to not earning enough and I probably will be working part time for another 15 years so once I get back to work full time and start paying it back I doubt I'll even pay half of it off before I retire.
If you have the funds available I would suggest talking to your son and seeing what he thinks about having his fees paid vs about using the cash for a house deposit when he finishes uni. At the end of the day, it is his life that will be effected by this so I think its fair that he gets some input.

[guessmyusername]

I am in Scotland and while we do not pay fees for Scottish courses, we start to pay back loans when earnings reach £19,390. That is lower than England. I supported dd through university so that she did not need to take out loans because I did not like the thought of her leaving university with a lot of debt.

[BubblesBuddy]

Actually Martin Lewis is a Journalist. He also studied at the LSE before he studied journalism. You could argue he’s an entrepreneur as he made £87m when selling MSE. I cannot see any record of him being an accountant. However with student finance, it’s up to you. Our DDs took out loans. Most students do. We are giving them money for property though. Both are in London but we are not. It’s our IHT planning.

No one really knows what job their dc will get and at the moment, if they will get one at all. Some are permanent students. Medics will always get one but arts grads are worse off than health grads. They are bottom of the earnings tables for grads. So yes, a few high earning grads pay a lot for their loans and others nothing. It’s a grad tax. Martin Lewis is spot on about that.

[Needmoresleep]

Martin Lewis is not an accountant, but takes a strictly financial approach, focussed on the individual. He does not touch on an individual’s wider needs, nor does he consider the societal impact.

His input can be valuable, but normally individuals will balance the straight financial facts against their wider desires. Ie as in the points made above, would having a loan and debt motivate a student, would not having debt give a student greater flexibility/standard of living when starting their career.

I agree, most people take loans. However if you filter this number to those who could afford to pay, or indeed those with sufficient capital to be looking at IHT planning at this stage, I suspect most don’t. Especially with parents who have paid fees, the attitude seems to be that they will carry on paying until the end.

But these are individual decisions, based on individual circumstances. I have never understood the MN chorus that decrees that taking loans is in some ways a moral imperative, even if you can afford to do otherwise, or plan to top the money up in a way that gives the DC a higher standard of living than many of the taxpayers who fund it all.

[cakeisalwaystheanswer]

The above post reminds me that I was very surprised when a friend of DS1 told him that he was getting student loans because his family are very wealthy, used to paying school fees and I think they have a moral obligation to finance their DC through university. Apparently it was so that the friend could learn an important lesson about money. He studies in London and at the end of his first year his parents bought him a £2m flat in central London. Tough parenting.

[Newgirls]

The cost is 5% from the day it starts, so it isn’t a cheap loan.

The student pays 9% back each month when they start earning over 28k.

We are contributing and dd has got a loan in place - I think it is valuable so she learns to budget and also knows the value/cost of her course

[SueEllenMishke]

The repayment threshold is actually £26,575

[SueEllenMishke]

Oh and they pay back 9% of what they earn over that threshold.....not 9% of the whole amount.

[Xenia]

Yes so it you were someone like a London lawyer on about £100k after being 3 years qualified the 9% of about 75K is £6750 a year of £562 a month. If you only earn just over the threshold - say you earn £28k you may just pay £180 a year back and never pay the whole loan off which in effect makes it more a gift from English tax payers than a loan at all.

[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.