Student loan wisdom

[rafeal]

I've just been told the deadline for applying for student loans is this week! I haven't checked for myself yet but assuming that's right..

I'm in a bit of a quandary about how to best help the DC. The first two will be starting this year and next. Then there's DC3 in 2 years time. So, what we do for one we have to do for all. Due to inheritance we do have some flexibility in how to support them. Its not a huge inheritance though and we are in our 50s now and future our income no longer feels as secure.

The old wisdom used to be that if you were taking one loan you may as well take both. Is that still correct ? Pre-inheritance we were planning on them taking loans for fees and we would provide rent and maintenance. But friends said there was no real benefit and they should take both. But this seems to be based on the old loans. Does it work the same now ?

If we stretch ourselves and do it the other way round and they take the minimum maintenance loan (they won't qualify for more) surely they will pay that off much much earlier than if they take both loans ?

Another thought is to front load our help so they borrow less (maybe nothing) in the first two years but take the full loans in the 3rd and 4th year (4 yr course), saving a couple of years of interest. Is there anything I haven't thought of here ?

The deadline this week is for those that started in September 2022 - not for those who intend to start this autumn! Their deadline is next May! So you can breathe a bit.

You need to think about potential salaries. The repayment is fixed regardless of whether they borrow £15,000 or £100,000.

My thoughts, for what they're worth. The new loans ("Plan 5") will last for 40 years but only rise with inflation. So if you can beat inflation in some other way, that's probably going to be a better deal. And/or stick £4k per year in a LISA for the 25% tax-free bonus towards a house deposit?

Also, the advice was always that only 20% of students would pay off their loans in full, but Plan 5 should take that to 50%, so I'll wait for wiser heads to advise on the impact of that!

Ah ok, thanks for the info re the deadline titchy!

DC1 is likely to be a high earner if all goes to their plan. Graduate salaries are high. They are likely to start paying back very soon and payback at a high rate. Does this make a difference ?

We will make an equal contribution to all 3 but will structure it according to needs.

I'm really not sure about taking the house deposit will be the best route at this stage. We would need to give all 3 access to the same amount freely. This is fine in theory, harder in practise. Minimising their debt going into adult life may be the fairest option and definitely what the parent we inherited from would have wanted.

Who does it work out best for ?

Huh?

The deadline for those starting in September is this week

The deadline for students applying to start this September is Friday but that is just to guarantee the money will be paid on time. You can apply later but the payments may be slightly delayed.

Martin Lewis answered this question on a podcast about a student who had money but didn't say how much he had in savings. His advice was take the loans now and then once you have graduated and are in a job earning money make a decision then as to whether to use that money to pay down all the student debt or use it as a house deposit instead knowing that house prices only ever really rise. If you decide to pay down the student debt how long will it take you to save back up the amount you had in the first place?

Does that help? I would still advise them to take the maintenance loan. Effectively using this years minimum maintenance loan figure of £4651 per year per child, times that by a 3 year course times 3 children and you get just shy of £42k. I think given the choice my son who is at uni would rather have the £14k toward a house deposit. He already has a LISA.

This. It's not a hard deadline. The hard deadline is next May! https://www.gov.uk/apply-for-student-finance/when

High earning grads benefit from a lower loan as they'll be repayment free sooner. Very low earning grads benefit from not having to repay at all (or part timers). The ones in the middle will fare worst.

I decided to pay the fees and rent etc as it was only a bit more than school fees I was already paying so I just prolonged the pain, as it were.
The reason it made financial sense (as well as being psychologically what i wanted to do and what my parents did for us who made up for us the tiny tiny minimum grant to the full one) was because I thought it likely most of my children would earn quite a bit and indeed 2 are (and 2 others will be next year) lawyers in London.
So if someone is on say £100k a year then they pay about 9% of £75k in loan which is about £562 a month repayments. When they earn £150k the repayments are even higher. Now they might be able to save and pay it off quickly if they earn that kind of amounts but it felt nicer in our case that they simply did not bother with the loan at all so that is what we agreed - that they would take on no student loans or other debt at university and in return I would fund them.

However even parents who are very well off will often feel it is better to take the loans so I accept mine may be a minority view.

I also did not feel I should burden mine with a graduate tax of 9% for much of their life when I could afford to keep paying fees as I have done for the last 20+ years. The deal is they graduate debt free and then stand on their own 2 feet. They can save for their own house deposit by working in the holidays etc. My first DC graduated uni with £8k in savings from working incredibly hard every uni holiday. She has since paid for her own masters and professional qualifications (through her employer choices) and her savings are up to £55k and she is flat hunting in London, and she can get a bigger mortgage as she hasn’t got any student debt. So it seems to be working, as a policy. I’m treating the other 3 the same. However I wouldn’t be doing it if I couldn’t meet their fees and expenses out of income.

For most students, having a contribution to a house deposit or something for which there aren’t reasonable government loans available will help them out more in the long run.

So being able to fund them doing an unpaid internship or study abroad, or professional qualification even.

The loan system is not great but it’s a necessary evil for most people. Unless you could afford to pay everything for all three, any contributions you make (like paying in y1) will quickly be swallowed up by the interest.

Unless students are likely to be very high earners reasonably quickly, they’re better off taking the loans and having the support in other ways.

I have also helped each of them with a first property as well as paying the university fees (although what will help them most in life in terms of earnings will be their education and career choices really if we look at a 40 year long career).

However it is not a question with a clear answer that is right for everyone. Even if they will earn well over the threshold to pay back the loan the extra 9% on income over the threshold is not a vast amount - it is like 9% being added to the 40% tax band or something like that and if they do earn a lot they can save to pay the loan off quicker if they choose to do so at the time.

Oh for Pete's sake Xenia would you put a sock in it!

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Tasteless