How to fund DS at Uni

[TreesWelliesKnees]

Hi, I'm looking for insight from people who have a bit more financial knowledge than me.

I'm in the fortunate position of potentially being able to completely fund DS through uni so he emerges with no student loan to pay off. A family member is going to pay 9000 a year, and I could fund the rest. But is it the right thing to do? I'm concerned about whether it might affect his motivation. I'm also wondering if it wouldn't be better to save the money to give him for a house deposit later on?

On the other hand, given that student loans are now charged at 7% interest from the moment they are taken out, is it better to not have him saddled with this kind of debt if I can avoid it?

Options are:

1. fund it entirely using my contribution plus family member's
2. family member's contribution part funds it, loan covers the rest. £9000 a year from me goes into savings for a house deposit.
3. loan covers almost all of it and £9000 from me and £9000 from family member is put into savings for his future every year.

He is going to be studying an arts based degree, so no guarantees of a high earning career afterwards. All advice or experience welcome. Thank you.

Not answering your question (I have no strong opinions on the matter although others do!) but the interest on student loans will be, from this year, set at RPI.
https://educationhub.blog.gov.uk/2023/08/01/how-are-student-loans-changing-everything-you-need-to-know/

And if you do decide to save it, have a look at putting £4k/year into a LISA!

Thank you. That's a useful link.

My dc (in their 20s) would all FAR rather have a lump sum now, to be able to get them on the property ownership ladder, and manage their student tax, than have no student tax but no house deposit.
It means they have to pay out huge rents and struggle to save and can see this going on for years, rather than that helping hand for the deposit and then all payments coming off their mortgage rather than their landlord's mortgage.

Also, be aware that loans for new starters are now different from last year, or the year before or the year before that, so be wary taking advice from those whose dc started University before this year when I 100% would have said save for house deposit. I haven't really looked into the details of the changes as my youngest started a couple of years ago.

I'm not informed enough to know whether it's best to borrow and invest/save, or avoid borrowing.

He's going to be in a great position whichever way you do it, I think.

I don't think that you/family paying for his uni would demotivate him. From experience, a big borrowed sum can feel a bit like "free money" at that age...

I would just say that if he can leave uni in a fairly good net financial position (rather than deeply in the red) that will be a great foundation for his future decision-making.

I think that taking on so much debt (university and then post grad vocational stuff) contributed towards me having a bit of an irresponsible attitude towards money. When you're thousands in debt, it doesn't seem a huge deal to borrow a little more... I didn't really save in my 20s because managing to get a deposit together seemed so unachievable that it wasn't even worth trying!

(I fully realise lots of people take on debt and don't end up frittering away money like I did/do... I think student debt was just one of many many factors, the main one being my terrible personality...)

If he isn’t guaranteed to be high earning post degree I would save it for a house deposit. Then after his degree he’s not wasting loads of money on rent when he doesn’t have to, and if he doesn’t earn highly he may never pay much of the degree off.

My parents fully funded me through university and I came out debt free. It has been the most incredible gift, and has allowed me to save for a house and save up to have children without the burden of an ongoing debt dragging my income every month. I fully intend on doing the same for my kids when the time comes (although I am also making other arrangements to ensure I can also help with house deposits - it would be a more difficult call if it was either/or).
It certainly didn't adversely impact my commitment to my studies, if anything I felt a responsibility not to squander the opportunity that they had given me.

Yes definitely do this, £4k is maximum he can pay in but the government top it up to £5k. I'd set this up quickly in case the government decides to pull out. Help to buy has stopped now.

Personally I don't ever think of my student loan, comes out of my salary and doesn't impact credit rating etc. Would much rather have a lump sum after uni, once I'd settled in a job and put it towards buying a property.

Personally I haven’t even considered covering the full costs of my child’s uni. I pay the additional they need over and above the fees and loan which is £6-8k a year. I can think a lump sum would be far more valuable to them.

If we could afford to fully fund DCs I would actually invest it for them, definitely a LISA to enable them to get on the housing ladder and top that up every year they are at uni. Ds1 will be going into his 3rd year. He has already run potential graduate salaries through a salary calculator so he can see how little he would be paying back at the start of his career. Has also looked at what a mortgage company would potentially lend him etc.

The hardest thing for them to do is get on the housing ladder. Ds will leave uni with £27,750 debt from tuition fees and some £13.6k + from the minimum maintenance loans; we fund the parental top up of £5k each year. £40k would go a long way to a house deposit. Ds intends to live at home for a few years and bank the vast majority of his salary.

I think those who say that their children would benefit more from a £60k lump sum now instead of a 9% graduate tax for the rest of their working lives (because that’s what the new scheme means, in almost all cases) are taking an unnecessarily short term view.
Having the student debt reduces the amount they can obtain by way of mortgage (as it increases their outgoings/reduces their mortgagability), and I don’t know about you, but I would have seriously missed 9% of my salary when I was paying nursery fees etc etc. Actually at any time. If you can afford it, I would pay now and skip the loans altogether.
I have paid my kids fees and accommodation so they graduate debt free. DD1 4 years out of uni has saved £60k from her uni holiday earnings and post-uni earnings and is buying her first flat. Her salary is her own, no graduate tax.

but either take all the loans or none of them. The graduate tax is the same whether you have borrowed 20k or 200k and the new terms (RPI etc) mean it is much more difficult for snuone apart from the very highest earners to pay off during their working lives. Paying part and loaning part makes no sense at all.

You know him best. If you finance him, would he use the opportunity to work alongside his degree and save for a deposit / family etc, or would he just have a more lavish lifestyle- subscriptions, gadgets, eating out all the time etc. If the former then not accruing any student debt is better as he saves on interest. If the latter I’d instead save for a lump sum to give him later. In my experience a lot of family-financed students are not behaving like independent adults (and aren’t treated as such by their family).

Paying off a student loan, especially if you’re not a high earner, is very unlikely to affect your DS quality of life. For me it’s about £30 a month. Having that lump sum would HUGELY affect him in a really positive way, so I would not cover him and advise him to take the loan instead. Save your money for helping him with property.

Have a listen to this, it totally changed the way I thought about it
https://www.bbc.co.uk/sounds/play/p0fz54f9?partner=uk.co.bbc&origin=share-mobile

Ask him his plans. If he plans to go for high paid work (eg see the current MN thread on children at age 23 earning 60k) it is probably best fully to fund the degree. I paid all fees and costs of my 5. 4 are lawyers (or almost lawyers) and clearly financially that was wise for them. One of them does not earn more than about £22k but even he is very please he has no student loan for the future (but for him financially if he is never to earn much more it would not have been wise to fund him). I have also helped all 5 buy a first property so it was not one thing or the other in my case.

Unless our son plans to earn a lot and as you want him to have an incentive to do well and because you need to use money from another family member too, on balance in your case my advice would be that he should take the loan.

This is a loan. However not a not a loan you must pay off. So it’s a grad tax. It’s difficult to know what job he might get. Plus the vast majority of students will still need it and it doesn’t affect what mortgage you can get. How much more valuable is the money you are all putting in if it was a house deposit? What other money is available for him? If £0, have the loan. If he doesn’t earn that much, he’s got a great deal and a house deposit. Martin Lewis always has the best advice. So listen to him!

No idea about your finance questions but your DS should be strongly advised (required really!) to be serious about some work experience - placements, internships, or a summer job.

Career service colleagues at my university say this is the single common thing that most (if not all) good graduate employers look for: some evidence of experience in the workplace.

Even if he doesn’t need to supplement his funds through university, he does need to get appropriate working experience.

https://www.moneysavingexpert.com/students/student-loans-england-plan-5/

Lots of food for thought here. Thanks all. I'll discuss it with him and with family member and go from there, but I am leaning towards taking the loan and gifting the lump sum later. Good point about not doing option 2 as the repayments are the same, so I've ruled that out. The Martin Lewis episode is enlightening.