Is it worth taking student loan if you don't need to?

[NoSpend19]

I'm struggling with the maths on this.

DC is starting university next year and will be on plan 5 which is paid back for 40 years form the date of the first payment.

She is lucky in that grandparents left her some money in their will for university. As such she has enough to pay 3 years of tuition fees plus the minimum maintenance loan (which is all we would qualify for).

She is doing law and is hoping that her earnings will be reasonably good (but she's more likely to work in the regions than in a top city firm).

I think that she will be better off not taking the loan and just using the money she has since she then avoids the interest. I'm now however wondering if she is better off taking the loan money since she might not pay it all back and leaving her money in savings.

Has anyone done the maths? It's completely messing with my head. I have even tried to use an online calculator but its confused me even more.

Not unless you really think she won't earn much ever - accrues at 7.3% from day 1 of the course.

So we're talking roughly £42K in total? Unless you're in a position where you know you can give her a chunky deposit without disadvantaging your future, I would invest the money and give her the money for a property deposit. With the rental market being as crazy as it is I think getting her own place as soon as she can is wise.

You mean 4.3%

Im not familiar with the latest plan but if I could do this for my DC I would. I honestly think a lot of the advice given on student loans is really really poor.

Once you hit a decent wage, the amount you are paying each month skyrockets and the interest rates on high amounts often mean you are barely paying the interest. My DH often pays £400 a month. When you have a young family or are trying to set up a home that’s a huge amount of income to lose each month with no hope of it being paid off soon.

Also for context I borrowed £9000 and whilst I’ve always been quite a low earner but above the threshold I now owe about £8700 15 years later.

Does she want to actually be a lawyer?Have you looked into the cost of the Solicitor Qualifying Exams?
Might be worth saving funds for that?

I'd be encouraging her to open a LISA and max that out. 10 years of putting £4k in + £1k govt bonus plus interest will be a lovely wedge when she's ready to buy.

The chances are she won't pay it all back, maternity leave, working part time, lower paid job then she thought she'd have, if she's unfortunate and ends up ill or in an accident etc - lots of reason she might not pay , and if she does pay it just comes out of your wages with NI and tax and you don't really notice it.
Getting on the property ladder early though will be a life changer.

Ah yes sorry. Still unpleasant with compounding

Having done my own research on this I would encourage her to not take out a loan if possible. The interest rates as stupidly high (8/9%) in order to make the loan system work I.e. to compensate for those graduates who will never pay their loan off.

I forgot to say, I too disagree with Martin Lewis on this one. As per a previous poster.

Jumping the guns bit but…. Is she looking to become a solicitor? There will be further education costs. Few firms cover the cost of the course which can range from 7500-17500 (or even more depending on the course provider) and if it’s the higher end of the scale I don’t believe a student loan will cover the full course fee. Maybe she’s better taking the student loan and tucking the rest away for the additional costs. Trainee positions can pay a small amount - like 25k - anywhere up to 150k+ depending on the firm. Warning - the higher the pay, the more you have to knuckle down and sell your soul (think 18hr days and seven days a week including whilst you’re on ‘annual leave’).

Im not saying that to deter - it’s very much the case of finding the right firm with the right ethos, and a decent wage for the hours out in, that also offers work life balance. It is not for the faint hearted!

Sorry to go off piste there! Good luck to her.

I do agree, those figures look scary. However - still worth setting against fact that many will not actually pay any accumulated interest, even if they do partially pay off original loan.
And rates will drop presumably if inflation falls, in fact are already lower as other poster notes.
Plus though 9% on a high income may look exorbitant, it will still only be 9% (unlike other income taxes - unless graduate chooses to pay more). And should make swift impression on remaining debt.
It's interesting, going over everything here, so thanks . . I am very much in OPs position.
I used to think the system was bonkers for apparently incentivising graduates to underachieve so they never had to repay . . . But now I think perhaps it also incentivises graduates to become high earners if possible straight out of uni so as to pay it all off in a few brief years!
Or else not to bother with uni at all.
Maybe that was the objective.
I think Martin Lewis is motivated if anything by fear that lower income prospective students will be put off altogether. I think too many go, but it shouldn't be family wealth dependant, so to speak . .

With current costs of living you will expect majority of people want/need to work.

@Singleandproud a LISA in some parts of the country (SE and increasingly SW), particularly if she ends up buying with a partner could actually end up costing her money due to the penalties and limit on property value. They only work if you’re somewhere property is still reasonably priced. Debt is still debt and ML seems behind the times with this one (and all the caveats in the loan agreements) as any other kind of debt he advises to avoid or pay off entirely rather than holding onto savings. Don’t ever think they won’t find a way to retrospectively fuck with the rules/move the thresholds and summarily screw people.
Even a minimum wage job will now push you into SL repayments when you may be less able to afford it but still not on a wage to get a mortgage.

I think Martin Lewis is motivated....by fear that lower income prospective students will be put off altogether.

Agreed.

We're in the very fortunate position that we can pay all of DS's fees and expenses with no difficulty (and still support him for house deposit if needed) but so many of our (equally wealthy) friends are having their children take out every loan available "because Martin Lewis says so".

They only work if you’re somewhere property is still reasonably priced.

Like where? It’s all relative @TiredCatLady

In any case, she’ll be working in the regions, we don’t know where exactly but a £50K deposit would be a 25% + deposit for a two bedroom flat in OK parts of Manchester and Birmingham, now and in a few years time. And the only penalty for a LISA is if you have to make chargeable withdrawals, easily avoided by not putting all your money into a LISA and not buying a house for more than £450K.

I wouldn’t get the loan. When I got the student loan out 20 years ago I was told there was no interest charged…that soon changed! They can change the T&C’s whenever they want. I wouldn’t be surprised if they change the minimum amount you need to earn, or change how quickly you need to pay it back, or charge ridiculously high interest. They can do what they want. Don’t trust them.

With current costs of living you will expect majority of people want/need to work.

Plenty of SAHMs even with current costs of living. Just saying....

A well performing law graduate from a top tier uni is very unlikely not to earn really well from the start. It would be crazy to plan for sickness, low paid jobs etx - at this stage in her life. Where is the aspiration? Start how you mean to go on!

It is rather common for lawyers or law-adjacent professions to earn 50k or more within 5 years of graduating. That would be 42% + the so called graduate tax deducted each month. Why not avoid that IF you can - focus on completing uni and target high paid jobs and own your own time

I'd take the loan and invest the lump sum for future house deposit. If such a high earner that it isn't needed for said deposit you can pay the loan off early - keep options open.

Very lucky my parents where in a fortunate position to enable us not take any loans out. Transformational. With living at home till my mid-20s, I was able to buy my first flat at 25 and it has been upwards from there. House prices are more out of reach now than 18 years ago but being debt-free and aiming for high-paying jobs early is still a winning strategy. You can save so you have the option of some time off or slowing down if you choose to have kids.

She is lucky to have the option

@marytuda that's not true. The interest was as high as 8% this summer and is now 4.3% until April 2025 as it's set at RPI.
And the 'experts' seem to now agree that almost 80% will pay back the loan, which will include a heck of a lot of interest.
OP I'd be minded to get the tuition loan and use part of her inheritance for accommodation (and save the rest) - if she took the minimum maintenance loan she'd still need about £5k or more to cover it. Depending on uni it will cost £8-15k/year for accommodation plus expenses. She'd be paying back the same amount each month no matter how large her loan, but of course the more she earns the sooner she'll pay it off, and she can always make lump sum repayments. Don't forget interest accrues from the first day she gets the money

Very sensible advice.

Everyone who is saying to invest the £27k - have you tracked what moderate risk investments have returned over the last 5 years? Vs compounded loan interest? Interest rates on savings vs actual COL?

Yes, yes, past performance is not an indicator of future etc - but precisely that. Even sensibly invested it may not grow much. It might sit there and do next to fuck all. It might be invested and actually go down. But you can bet your proverbial bottom dollar being a student will get more expensive. Debt, once you have it and if you’re not paying it down, only goes one way. You need to be quite certain the investment will grow faster than the loans and interest and take a punt on continuous earning from the start, not a need for more paid study/qualification or other reasons to not be above threshold. The £400 pcm a poster mentions up thread is a lot of money but barely denting a £50K+ debt.

No government is now going to remove student loans. They will only go up. And the more students owe more money, they more likely they start messing with the “loans” (tax) system to find ways of clawing more of it back.

If I still had my loans, my interest rate would be about 6.6%. Which on the amount I had at maximum isn’t a truly ridiculous level of interest.

However graduates are now accumulating in a year what I did in three plus a masters. And their rates can be higher than mine.

TLDR: I don’t trust that they won’t move the goal posts. It’s been messed with what, six times in 20 years and is sequentially just making graduates worse off each time (with the lie that they “don’t feel the repayments”).

I was thinking no risk i.e LISA, Chip and ISA. That £42K will gain at least £4K in interest over three years.

Getting on the property ladder early will inevitably change her life for the better - I don’t understand why people are ignoring this in their responses. The rental situation is dire, so best to avoid this if she can and start investing in a tangible asset and preferably one where she has the potential to rent out another room. It’s better from a mental health perspective as well, that security compared with the insecurity of renting.

Unless mum and dad can help, the alternative is for her to save years and years for a deposit whilst properly prices go up and up. Or wait who knows how long to meet someone who she can buy with, or wait to settle down with a partner already on the ladder. Of course neither of those last two scenarios could happen.

Also factor in what course for child did doing at uni and chance of dropping out - so many students who never complete their studies for various reasons inc mental health etc at any point during their degree - I know of 1 who left at end of year 2 and 1 in the middle of their final year!

keep hold/invest the lump sum for now snd see how uni goes first!