Tuition fees - pay upfront or take loan?

[Whatwillbe2]

My DS has inherited some money from an aunt. Would it be worth paying his university fees with this money instead of saddling him with paying a student loan when working? He’s very intelligent and money driven so I suspect he’ll be earning well in his career which means he’s likely to have to pay the student loan back & interest. I realise it’s a risk that he doesn’t need to pay it back due to salary but equally it seems silly if he has money available. It also seems the goalposts keep changing and who knows what rules they’ll change next! I also realise he’s very lucky to have this choice.

I think that paying tuition fees upfront is a bad choice for anyone other than the super rich. Saving the money to use as a deposit on a house is likely to offer a much better long term return.

I say use it for uni...reason why? every year they're increasing the interest rates for these student loans and its crazy! I wish I had that option going into uni. He'll thank you later.

I think better to use it as a house deposit. Student loan repayments aren't crippling and this will give him an enviable chance to get on the property ladder early.

Martin money saving always says take the loan.

I'd use the money for something else like a house deposit. I wouldn't use that money to pay off my student loans. I have savings which I could probably pay off all my student loan in one go but I don't feel there's a reason to tie my savings on that. Plus you stop paying if you lose your job or whatever right? Please correct me if I'm wrong.

Take the loan. Even if I won the lottery now, I wouldn't use the money to pay off my student debt. House deposit as PPs have suggested would be a better spend.

Yes. Say there's a recession or a personal reason his earnings take a hit, even that he decides to go into a less well paid profession if his interests change, his repayments would stop or be reduced accordingly but he would still have the leg up that a house deposit, capital to start a business, whatever, would afford him.

It depends how much he has inherited. If enough for a house deposit and avoiding loan then I would say yes, pay upfront. I wouldn’t encourage him spending his only savings/inheritance in that way as the question about how likely he is to fully pay back any loan has so many unknown variables at this point.

I would 100% take the student loan and invest the money in property or something. That's what I did and it was the best decision imo

Going against everyone else, I would pay the tuition fees.
it wouldn’t be a surprise if they changed again the rules (which Martin L didn’t think would, this time) and this way he will be the master of his own destiny.
If your DS goes to a highly paid job as he wishes then it really doesn’t make sense to take the loan or repay early.
of course lots of variables and we don’t know the amount at stake or your other circumstances.
good luck !

We paid the loan, but are lucky enough to be able to contribute a house deposit when the time comes.
Bear in mind, most students that never pay the loan back are female. That may sway you. Martin Lewis doesn’t tell you that.

Paid the fees that should say.

Under the old system, less that 25% of people paid back the full amount (they didn't earn enough before the loan was written off) - so it was like a graduate tax, so unless you were sure of getting a big city job straight after graduating you would be mad to pay it off up front. Now with the new rules its less clear cut. - I think more than half of people are predicted to pay the full amount.

Thanks everyone. He’s inherited nearly £50k so should be enough for some towards a house deposit too in the future. I agree there are a lot of variables and it’s a difficult decision to make at 18.

The loan % is now 12% - I think pls correct me if wrong. It’s not a cheap loan.

Delay taking it if you can eg he could pay for his first year and take a smaller loan for y2 or 3? You don’t have to take the full amount.

At £50k I’d get the tuition loan only as it won’t be enough for a decent deposit if depleted. Can you help him with his living costs?

I think he’d need to have north of £130k to make paying tuition fees worth it

We are in a similar position to the OP and I have the feeling that the balance amongst many people is beginning to sway towards paying the fees etc. upfront.

My child has some reservations about going to university. While they would benefit loads from it, it is hard to suggest that they put themselves in a position in which for the rest of their working life, they will have to pay off a huge debt, tiny bit by tiny bit. They are unlikely ever to earn very highly, meaning that for them, the debt will never end.

With other debts, it's usually possible to think - well, I'll pay it off with a bit of overtime/my new high-paid job/the money Granny left me. In the case of my child, I cannot see that they will ever pay it off - meaning that throughout their working life, they will always BE paying it off.

Use the spare 50K for a house deposit instead? By the time my child is in the mood to buy a property, that amount will probably be a drop in the ocean of what's needed. I have resigned myself to the likelihood that they will probably never buy - and in that case, they may as well have more money each month with which to rent.

Invest it in stocks and shares instead? I know nothing about investing. Get a buy-to-let? I have ethical objections.

If you're fairly well off, then you probably take debt pretty lightly - because there's always a backstop option when it comes to the crunch. Without wishing to sound like some wizened old crone toothlessly muttering, 'neither a borrower nor a lender be', I'm on a different page.

I simply don't want my child to be burdened by a never-ending debt till their retirement. I don't feel inclined to play the government's games either, in this ridiculous system of loans, fees, interest rates and fingers-crossed promises. If I persuade my child to go, I feel in a moral sense that if I have the money, I have to make sure it's not a regrettable move for them.

Have a listen to Martin Lewis on this. He has a lot of podcasts about it.

Do not pay fees up front until you have worked through the pros and cons. IIRC he says it's almost always better to take the loan.

@IfYouCantSeeMyMirrors
I am not sure you have very coherent thoughts on £50,000.

I understand you are worse off with the new loans of you are a lower to middle earner. You pay for longer and therefore you pay more. If you are a high earner, you pay more but clear the loan more quickly so paying less interest because the period of the loan is shorter.

So for the OP it might be best for DC to take the loan. However I would say that high pay isn’t attainable for everyone who wants it. Subject, area of work and ability are all in the mix.

The loans are still not really debts. You do pay over a very long period. Longer than most mortgages.

There is no real difference between a buy to let property snd a property. You own them both. You might decide £20,000 is a decent deposit but a high earner in London would need more than that. Therefore £50,000 would be more useful.

Do not consider shares etc. We have a portfolio and £50,000 isn’t a lot because of fees and possible losses. You can do very well of course but you need ISAs etc.

The reason there are loans is because 450,000 each year go to university. The state cannot afford the majority to get it cheap or for next to nothing. Degrees are supposed to confer higher earnings. If they don’t, then it’s really not worth doing at all. However look very closely about what DS wants to study and where. Earnings are attached to both these decisions. And ability!

For a higher earner who is likely to pay back the full loan, a debt that accrues interest at ?12% a year is going to be more costly than a slightly larger mortgage at ?5% a year.

On that basis, I would pay the loan up front. If you do this though, don't take out any student loans at all. If you take out even one years worth of maintenance loan you'll negate the benefit because of how quickly the interest accrues.

I'd avoid a student loan. The interest rates have gone up again and so has the time before it gets written off.
The loan rules change every few years and always for the worse.

I know someone who took the loan when they didn't need too & invested it into something else & made money but they are very savvy.

Please understand that whilst Uni is a debt, it’s on repayable based on yearly earnings over £28k I think at the moment and it’s about £5 a month or so. Check out Martin Lewis the finance man
I don’t earn that amount so haven’t laid anything back.
I can’t remember how long the debt lasts u til it’s wiped out but it’s not a bad debt

You mention Tuition Fees and I would say taking the Tuition Fee Loan makes more sense.

Also I assume if your son has received such a large inheritance that you are fairly comfortably off as well OP and if this is the case is your DS likely to only quality for the minimum Maintenance Loan amount or are they not taking a Maintenance Loan either and are you able to support him with living costs?

@TizerorFizz
Haha - I agree that I'm not feeling very coherent about it all, though getting there - and my situation is of course somewhat different to the OP's.

You say: "The reason there are loans is because 450,000 each year go to university. The state cannot afford the majority to get it cheap or for next to nothing. Degrees are supposed to confer higher earnings. If they don’t, then it’s really not worth doing at all."

What the state can and can't afford is arguable. But I'd also argue that there are benefits to degrees, at a national level too, that go beyond how much you earn. And there are also professions for which the powers that be have decided a degree is now necessary, when it wasn't in the past. These professions are great for society, but do not lead to the kind of earnings with which you can pay off loans/fees. So a bit of a catch-22.