Should I pay off the student loan early?

[olympicfan]

DC has just graduated and the student loan already has 6k worth of interest added. (Borrowed 46k, now owes 52k). The current interest rate is 7.8%! They have got a job that starts on 35k but will be earning 50k in 2 years time. The job comes with accommodation so they will not be thinking about buying a house for about 5 years.

I had an inheritance and have also saved for DC so can afford to pay off their student loan before any more interest is added. Is this a good idea or madness? They are likely to be a high earner, but not city-lawyer type money.

Cremebrulee the important thing is that your DS recognises it is a loan that may need to be repaid one day.

Everyone is cutting back. Shops are struggling as are restaurants. Even taxi services as people have their night out on the cheap and avoid getting a taxi home.

DD used to wonder about some of her fellow students. One flatmate had a dad who was a delivery driver. Yet he spent a fortune on takeaways, messed up every part time job he had, and failed to hand in essays on time, thus ensuring his marks were capped. When it came to their end of tenancy clean, vital to ensure they got their deposit back, he was nowhere to be seen. Another flatmate had a disabled dad and a mum who was a part time cleaner, and completely different. Thrifty, appreciative of DDs efforts to ensure they paid the lowest possible for utilities, happy to pay her share of petrol for a group shop in Lidl.

DDs University was well known for having its share of well heeled students from the home counties. Types who would get to the station at a peak time and then phone mummy asking if she could pay their fare as their bank account was empty. But there were others who were having to be careful with every penny but who were equally fun to hang out with. Who cares if coffee was in a thermos rather than a take away cup. Or lunch is prepacked rather than bought in a local cafe. There were plenty - the graduate medic with kids and a mortgage, the working class kid from outside England whose home government did not provide student finance so was entirely dependent on money collected from the extended family.

My advice:

• make sure your son understands that money he is borrowing will be repaid at a hefty interest rate. (OK not if he never earns much, but presumably that is the intention.) The less borrowed the better.
• teach him to cook. (DD interned in a cookery school during her gap year and can rustle up something from almost nothing, a real life skill.)
• think about a gap year and saving
• mentor him in bills. Compare coach vs train. Look at raileasy and other split ticketing sites. I went up with DD when she got the keys for her second year flat, and we spent two days, first annotating the inventory which helped avoid disputes at the end, and then looking at comparison sites for utilities, broadband etc, and then cleaning as the flat was grotty but well located and cheap. Buy a refurbished handset and a cheap SIM only deal. Trainers that are slight seconds. TKMaxx.
• give him your old kitchen stuff, as inevitably stuff gets stolen or damaged, or buy from charity shops. Second year furniture from Cancer Research.
• look at cheap entertainment. MyBoxOffice is great for free stuff in London (possibly elsewhere). Student societies. Perhaps save for a big night out every few weeks, rather than every week. Buy alcohol from a supermarket. Load the second log in to home screening services onto their laptop and get a cheap projector. (Sky Sport allow two log ins, as do Virgin.) Avoid food delivery services, taxis, overheating a flat, drugs etc.
• get to know people on the course who work consistently, including overseas students. Support each other and ignore the out and out party types. Daddy's contacts might get them a job, but your DS can do it on his own.
• Look for a part time job at least in first year and work hard to find internships in summer vacations. Or perhaps sign onto an agency which provides temporary workers in industries he is interested in. Casual work waitering before Christmas and for summer events.

@Cremebrulee45 what you’ve written is what I understand too. That the mortgage LISA are proving to be an expensive money pit people who want to buy in London or other expensive areas.

I am concerned about even being able to top up the maintenance loan!

I went to poly with no loan and earn considerably less than DH who has no qualifications. I see my younger colleagues struggling with living in London and paying hundreds on their student loans and it makes me so sad and worried. These are either non graduate jobs that are full of people with MA and PhDs or they are low paying graduate jobs where it’s almost impossible to progress.

I am in London. The vast majority of the wealthy people come from wealth and connections.

Added to this is the worry that DC would probably have a portfolio career or work for themselves. They’re interested in art and design subjects. It’s bad enough doing a tax return each year and saving the tax money. Can you imagine trying to work out how much student loan you’re likely to pay back each year and make sure that’s in the bank to pay in January?

I feel I must have made some really awful choices to be still living hand to mouth. I had no idea there were such riches!

@Jaxx DDs flat was £600,000. So really depends on their earnings. Also it’s quite important to realise the loans are now over a 40 year period. It’s actually the lower paid who will pay more because they will pay for longer. Now 40 years. I think MSE gives all the info on this aspect of the loan.

@Tizer this is what concerns me with the LISA. We are in London and suspect DC will want to make their first moves on the property ladder there. I expect that first time flat purchase will exceed the £450k ceiling and that puts me off.

Thanks @TizerorFizz but I am fully read up on student loans and LISA. I doubt my son will be in a position to buy a flat for £600k as a ftb given his current career plans. I foresee him living at home in London at the start of his career, he will very likely be able to work in other parts of the country. I hope he won’t be low paid, but realistically he isn’t going to be in a position to pay if off before he is 30 like your daughter.

@StarlingsForever There are one bed flats! DD is very fortunate of course. I know for those with less income and less generous parents (!) it’s very hard. DDs other issue was constant travel for work via numerous stations and not wanting a long commute to them. Houses were out of the question though and there are cheaper areas of London.

Good point above about the4 medium earners paying more back on the student loan. Women's Hour on Radio 4 makes the same point including where women take career breaks. Obviously if you never earn over the ceiling the loan is a complete gift from hard working tax payers to the student (only 15% of people my age even got the chance to go to university). If you earn very large amounts you pay it off fairly quickly, although still only paying 9% of your earnings towards it although very high earners might save up and pay some of the loan off quickly. It can lead to some quite complicated calculations.

As to when graduates can try to buy a property that will depend on lots of things. My children bought in their 20s. My oldest son bought just outside the M25 on the tube for about £310k (small house, free hold). Another child started with a one bed flat in London. As at now all 5 children own a house, not a flat and my oldest 2 are married with children (and still working). My sons who are 25 do not have many friends who have bought just yet. They live with me but took on their brother'[s house with my help which they let out along with another house very near the first, whilst they are still not sure where they will want to settle and our house is commutable to work in inner London - although one only has to go into the office once a week so post covid for some lawyers where you live and work is a completely different ball came. I would not have helped them buy whilst at university except that their brother was moving so it made a lot of sense to keep his house in the family in their name and let it out particularly as they had no income for 5 years as a student so no tax on the rent due to the single person allowance. If it had not been for the older brother I would have waiting and helped the youngest 2 to buy in their mid to late 20s.

I don’t think about it like that (that if you never earn enough then it is a gift from hard-working tax payers)… thinking about society, we need people working in a range of roles and capacities - a lot has been made of creative arts graduates being much lower earners, but surely society would be much worse off without the creative arts? So the idea that someone earning less than £24k may not be hard-working, or important to society, is not correct in my view. So all of these roles are worthwhile and should be invested in. I am an older parent - I went to university when there were no fees, and when there were grants. Coming from the background that I did, I probably wouldn’t have gone to university had there been fees / loans (I was the first in my family to go to uni, my parents didn’t have much money when I was growing up, and were terrified of debt, and I think I have inherited some of those feelings). I am so glad that I was able to go to university, and that society was willing to invest in me. As an individual, I have never been a higher rate tax-payer (choosing a vocational industry / profession that is not particularly well-paid, and spending some of the last 18years as a SAHP, and some of it part-time, and some in a freelance capacity). I think I make a contribution to society, and to my family. I don’t resent those who earn much much more than me, but I would hope that equally they would not resent me, and feel me to be a burden on society (as I am not earning ££££, and not a ‘hard-working taxpayer’).

@Stoufer I agree with you. My DHs parents did have to make a contribution to his maintenance though. They partially failed to do this and preferred a new car. So, having worked in Grants and Awards for my LA, I can assure you many parents did have to make a contribution.

There was an issue that the lowest paid and those with minimal qualifications paying for students and resenting it. I don’t agree with that but fees have hugely expanded uni provision. This has been good for some graduates but is producing too many in some subjects. I do think most grads are valuable and clearly many women do look after dc and take a holiday from the grad tax and then return part time. Many women I know truly value this. It’s not sponging. It’s doing another job.

We decided to pay off the student loan. This is a near identical situation in the BBC today:

https://www.bbc.co.uk/news/articles/cvg3g8wpwwqo

@olympicfan
You don’t owe the money as in a bank loan. This is scaremongering. You “owe” what you will repay based on salary. The current loan goes over 40 years so it’s not a great deal for lower end earners. However most don’t have the money up front , or to give it afterwards, and might have several dc so they must take the loan and stick with it. The dc earning below £30,000 aren’t paying hundreds and hundreds of £ a month.

Also regarding the arts: great that we have amazing arts. Not great that loads of degree holders never get near a job doing it. So train numbers closer to our needs might be better and cheaper.