Why worry about your kids student debt?

[saladcruncher]

I finished uni in 2010, and became eligible to start my repayments from April 2011.

This was under plan 1 - the 'pay via tax method'

Plan 1 has a 25 year write off, so any remaining debt will be forgiven at the start of April 2037.

I'm already 13 years through this and in those 13 years, I've paid off I think up to 90 pounds. And I'm not going to be paying anymore anytime soon.

Basically it looks like I'll reach the write off period and have paid off 0% of my student debt - a free degree in effect.

I took out the full maintenance and tuition fee loans.

My question is, why are some parents trying to pay huge chunks of their childrens tuition fees or living costs in this situation, when the money could be put into a savings account for a house deposit etc in a few years time?

Granted a lot of people won't be earning under the threshold like I unfortunately have been and the write off is later but the principal is the same.

If you've only paid £90 in like 10 years.... What do you make per annum then?

@saladcruncher you may be fortunate to have your loan cancelled, but it is at the expense of others. So much Plan 1+ student debt has been written off, that the government has designed subsequent plans to compensate. If you had children due to go to uni imminently you would be wise to look at it with fresh eyes, as pp's in this thread are doing.

For those of you quoting Martin Lewis, bear in mind that his advice is evolving for Plan 5. But my son started uni in the final year of Plan 4 and his advice was looking out of date then too, due the rising interest rates. Also, the default assumptions in his online calculator didn't stand up to scrutiny for me. It assumed a low starting salary (very low for London where we live) and steady salary inflation (no promotions), and that the salary threshold for repayments would rise with inflation (it didn't that year). If I played with the assumptions to make them more realistic it was clear that I was better off paying the fees.

It stands to reason - the Government is not daft enough to maintain a student loan system that actively discourages well-off families from paying their children's fees. I hope we would all hold them to account if they were!

Are you sure you are on plan 1?

Plan 1 loans are written off once you turn 65 if you began your studies in the academic year 2005/06 or earlier, while from 2006/07 or later, they are written off 25 years after the April you were first due to repay.

Your argument is confused! You don’t earn enough to repay any of your student debt ( bar £90) but you want to get a mortgage instead. Those things aren’t compatible!
if parents can afford to pay student fees then their child graduates debt free, never has to think about student loans and can earn as much as they want without considering what they’ll have to pay.
what a start in life and a no brainer really.

I only borrowed 20k far less than they will now, and it took me more than a decade to repay it because of the interest. I think a bank loan would've been cheaper. You have a low income to not have paid anything back. I was paying mine back within a year of graduating

I'm also on plan one and mine doesn't get written off at 30 years

Where I am (not UK), all financial institutions factor in student debt if someone goes for a loan. Basically, irrespective of deposit amount, it absolutely slashes their borrowing capacity to the point it’s not feasible. Hence, here it’s important to try and get rid of it for kids if you can before they reach the point of going for a home loan.

They still earn decent salaries, especially if they go for promotions and take on management responsibilities. I have friends who are teachers and others who are in the nhs and they are all set to pay off their student loans (plan 1)

@Newtoniannechanics@SgtJuneAckland

Plan 1 loans started autumn of 2006 - and have a 25 year ｗrite off. Yes, I'm 100% sure of what I'm on/ have.
Plan 1 was the 3000 pounds tuition fee group.

Friends of mine went to uni in 2005 (the year before plan 1 loans were instigated) with only a 1000 pound tuition fee loan per year - but the write off is much later (age 65 I think)

When Plan 1 loans get written off
When your Plan 1 loan gets written off depends on when you were paid the first loan for your course.

If you were paid the first loan on or after 1 September 2006
The loans for your course will be written off 25 years after the April you were first due to repay.

If you were paid the first loan before 1 September 2006
The loans for your course will be written off when you’re 65.

@sashagabadon That wasn't my argument at all. I wondered why parents of children who (I hope) would be earning a good salary (and therefore paying off their loans every month), would go against the advice as suggested by the Money Saving Expert and put money towards their loans instead of a house

It's not as straight forward as that. I'm on plan 1 and it's not written off until I'm 65

Topping up seems essential nowadays, and all students should have part time work anyway. But i don't get paying student debt off - with the salary threshold so high now, most graduates will barely touch their debt and then it gets written off. and it doesn't affect getting a mortgage.

@SgtJuneAckland

I'm the after September 2006 cohort. I understand you've got a different loan though.

Anyway, others have kindly answered the question of why they do what they do and I'm satisfied.

but most won’t get it written off now as will earn over the threshold and the interest keeps accumulating?

A colleague of mine is paying over the threshold. Me month she took in a two day strike (NHS). She earned more that month. She is thinking of dropping a day so she earns more. That can’t be right. It isn’t good for her career or the economy. By the time she is let off she will have paid more than she took out probably.
No problem with paying off student loans. It is the interest rates that are morally wrong.
I don’t want my kids to have an extra outgoing every month when they are adults so will do my best to pay their uni if I can.
I also took out a load but that was before the days of interest rates and I paid it back in ten years.

*loan

It can get quite onerous if you are earning good money.

One of my colleagues paid over £10k in student loan repayments last year. More than half of that was on interest.

and it doesn't affect getting a mortgage.

Of course it does. The lender will look at all that’s going out to ascertain if you’re good for the repayments.

https://www.moneysavingexpert.com/mortgages/student-loan-mortgage-impact/?utm_source=mseios&utm_medium=mobile_app&source=MOB_MSEIOS&utm_campaign=mse_home

@Newgirls

Write off is what happens at the end of the loan term. So say 40 years after graduating, any amount that's not been paid off (including accrued interest) gets written off - just before retirement basically.

Thanks. I realise that but im not sure the rules will stay that way. Surely govs can change that? And in the meantime a student needs to pay interest if they are earning a reasonable salary.

i think student loans are perceived as cheap or even free money but that’s no longer the case if you earn over 45k

There are pay structures and salaries that mean the amount of interest is enormous over time.
If you earn massively from the start, it's paid off quickly with less interest . If wages are lower, it'll get written off.
Some mid/highish earners pay massively on interest and will pay it off but only after many years of interest compounding.

Obviously one cannot know if there will be disability or death

I looked at this as DD doing a medical degree and was really taken aback tbh after having been reading Martin Lewis advice

It would be useful to know what Labour are going to do about this. Like most things it isn't clear....yet. Some suggestions that they will follow the Welsh model of grants into loans, on a sliding scale; or maybe making a very low payment rate (?2%) up to £45-£50000 with much higher rates above that, which would be better for middle-earners.

@Frontwarm That group isn’t many doctors though after a few years!

We let our DDs take loans. One has paid hers off at age 30 and graduated in 2014 after a 4 year degree. Lower tuition fee I think. Other DD has hardly paid anything. London salaries are not all huge! Others we know are also earning under £30K in London. Arts grads tend to earn less too.

It’s around 20% of grads who don’t get grad work and pay little back. They cost the tax payer a lot. The IFS has studied this in great detail. There’s no graduate premium for 20% of degree holders. Overall it’s 10% higher lifetime earnings than non grads but obviously some high flyers earn lots . Top of the tree are medics for getting value from their degree as they get 100% employment. Other subjects vary but economics from the best unis follows. Law, you might think was high up, is not because there aren’t enough high paying jobs for law grads so no 100% employment in high paying roles.

The current loan system is actually going to penalize the ones earning less who pay the grad tax for longer. The loans have never been counted for mortgages. Has any lender changed position on this?