Question for those who are paying fees upfront (or considering it)

[studfin]

I've namechanged for this, as I know that threads about money can be sensitive. And I want to say from the start that I know how incredibly lucky we are to be in this position. This isn't a stealth boast thread - I'm genuinely unsure what to do and interested to hear from any others in the same position.

Basically, due to a combination of fairly high earnings and inheritance, we have the option of paying the DCs' tuition fees and maintenance costs without loans. This won't have an impact on our daily life, and we would still be able to help DC with a house deposit when the time comes. We've already basically decided to fund their uni accommodation and living costs without them taking maintenance loans (they both have pretty low key lifestyles, so we wont be bankrolling high end living), but can't decide re tuition fee loans. Partly it's a financial question re interest etc. Martin Lewis says it's usually better to put the money in a high interest account and pay off the loan later once your child needs to start paying it off, but I don't know whether that factors in tax on savings interest (we're both HR taxpayers, and use ISA allowances already for our own savings). Partly it's a financial responsibility question - in that, do I risk my DC placing less value on their education because there's no financial investment on their part?

If I pay it for them upfront, part of me feels guilty for perpetuating inherited privilege, the other part thinks that, given the state of the jobs market and the uncertainty of the future, I should be making their lives easier in every way I can. I went to uni back when it was free, and my parents paid for my accommodation, so I'm also very aware that I had this privilege myself (I did take out maintenance loans, but they were pretty small really).

Haa anyone else made this decision?

You could pay the fees and maintenance costs, then once your DC are working you could have them slowly pay back the fees (without interest).

One of my DD’s used her inheritance and savings to pay for 2 years worth of fees and lived at home so didn’t need living expenses, the other borrowed every penny she could, different personalities and lifestyles (spender took driving lessons, bought a car, travelling in holidays etc)

@studfin we had this decision to make a few years ago when DC1 started uni. DC2 is still there. Out financial position is similar to yours - we had saved for their uni plus various bits of inheritance. And we can still help with a house deposit.

My view is unless your planning to give all your money to charity our children will still have the benefit of inherited privilege and taking out the loan even just for tuition fees doesn’t make financial sense - the interest starts compounding from day 1 at uni.

Our DCs therefore have no tuition fees or maintenance loans and I am aware this is an extraordinary rare to be in. I believe 96% of students take out the tuition fee loan. Logic for me is that you pay back 9% of your salary over £25k whatever your loan is and the interest keeps clocking up so even if you just take out the tuition of fee loans, you’re still paying 9% of your income over £25,000 per annum. I did a whole series of spreadsheets and for our particular circumstances it didn’t make any sense to the loan. You’re better off giving the interest you would’ve paid on a student loan or/your children would’ve paid to charity. Otherwise you’re just giving money to a student loan company when you don’t have to.

Remember your DC aren’t get something for nothing as you are paying for the maintenance tuition fees upfront and that means you’ve lost the opportunity cost of that money but of course it does save massively on the interest which is generally higher than the rate of return you’d get on most investments.

It just shows that the student loan policy of this country is deggressive rather than progressive. It isn’t fair but you’re not helping anyone by taking out the loan. My DC have been taught to be meticulous about not talking about money at Uni. Thy know how fortunate they are.

We paid ours up front. DH is debt averse and we easily could. DH's view is that interest is a waste of money and more nobly he very strongly felt that he didn't have to have student loans (b 1962) and he didn't want the children to either.

The point about inherited privilege didn't enter our heads. They had already had the best education money could buy.

The interest on the loan csn still translate into very low repayments though because it’s on earnings! If dc earn diddly squat, they pay diddly squat! If they earn mega bucks, pay it off immediately they get the gig. It’s a difficult juggle. Depends on career and earnings. An arts student won’t pay much back! A city lawyer will. You need to judge where dc will be in terms of jobs.

House deposits? Where? London is very different and we gave ours way more than uni loans! Mortgage repayments are far more onerous than student loans. Be careful about that - we minimised mortgage!

Hidden advantages:
They will never have to engage with the student loan people.
The money can never be taken away from them (eg by divorce)

We paid up front. Risk averse and the hassle of putting it away and paying later to gain some interest didn’t appeal.

I think it made my dd take it more seriously as she appreciates that she doesn’t have loans to pay back.

Ds yet to start uni but we will do the same for him.

We’re paying tuition fees and all living costs. We also have money for deposits for them and the eldest (2nd year uni) has a LISA we’re putting the max per year into - 4k.

We’re high ish earners - definitely not super high, but have lived well within our means for 20+ years so can afford to do this and also give sizeable sums to charity. We’ve been very clear and upfront in talking to our kids about our privilege, but also about the impact of our choices - eg by committing to give away xx amount of money to a specific charity, this is reducing their future inheritance!

The eldest 2 have/are in the process of setting up easy access accounts with good rates of interest - we transfer the fees etc to them in advance and they make the payments themselves. This is good for a couple of reasons - 1, they have responsibility for making the payments etc which I think makes it tangible, 2, they won’t have to pay tax on the interest like we do!

I think it can be short-sighted to focus purely on how the repayments will be very small when you’re on £25k… over the course of a lifetime working, the interest will have made the loan total very large, so the length of time taken to pay it off will be longer. Which means that after promotions and increases, when your dc may be at their peak salary level in their 50s, they may have a very large monthly payment. Probably when they are trying to pay for their own dc to go to uni as well.

We have made the decision to pay it upfront for our dc. The fees are in 3 instalments per year, and the accommodation / living expenses go out of our account monthly. It comes out of our income, so in terms of gifting, it has zero IHT liability - which a large lump sum (of fees / maintenance loan plus 3 years of interest - maybe £50k) would not - as if me or dh died within 7 years then the lump sum would be considered part of our estate for IHT purposes. (Sadly, we have now reached an age, where things like IHT liabilities are starting to become a consideration!)..

Oh - and re: privilege, my university education was free, as it was in those days (and I came from a family that was not at all wealthy), so it hasn’t left me without a work ethic, or not valuing hard work or taking things for granted.

We plan to pay tuition and living costs - IHT planning for us.

Mulling this over too. Slightly different circumstances, one DC has graduated (last year) and not earning enough to start payments yet. DC2 in first year and has taken minimum loan. At the time DC1 was going we talked about this, but we didn’t think we could stretch to it without jeopardising future house deposits / our own retirement planning and it was the previous scheme then that stopped after 30 years so seemed less onerous. But now DH will be receiving an inheritance of about £150k pending a house sale and we plan to make a deed of variation straight to the DCs and have been wondering if we should encourage them to use the money to pay off loans. It’s not really our decision as the money will by-pass us but they do take our advice on financial matters. Neither is likely to be a high earner. My instinct is very much that they should do this, even though they might never pay it all back, the freedom is very appealing, I now how much the younger people I work with hate their student loan payments. But I don’t want to pressure them or have them turn round in a few years and say they wished they’d kept it for house deposits. Will be having a long chat with both of them soon. The one friend we have confided in says we are mad for even considering it and he is pretty sensible with money.

Yes kind of. GP paid the tuition fees for all GC and we paid their rent and lent them the equivalent of the maintenance loan interest free. Which they paid back to us when working. Same for younger sibling.
We can afford to give them money towards a house, when the time comes, very lucky.
DS1 is 23, working, and student debt free already.

We are not high earners but give our dd £20k per year to cover fees and accommodation, she tops this up from savings. This comes from rent on a property (which we have just finished paying the mortgage on and will ultimately be hers) and my earnings, we live fairly frugally but are fine. We see this as an investment in her future and money that would otherwise be subject to inheritance tax. We weren't expecting the course to be extended from 3 years to 5 when we started this but hopefully she'll be earning in the last year.

The other factor for us is that DC1 is ND and really struggles with admin, I'd like her to have one less official body to deal with long term.

We are also seriously considering this. Either paying for it all, or loaning DC the money interest free so that he understands the value of money. From what I can gather, if you pay for it, as long as you earn a decent salary and can show that it doesn't come from savings, it doesn't impact on inheritance tax and you can just gift the money. Is that right? And if you decide to loan them the money, I assume it's possible later on to write the loan off or would that have inheritance or tax implications?

We paid upfront so they don’t have it hanging over them.

I pay DC dividends from my company so it's pre tax income from me into low tax bands for them. I make them do the tax returns and save and pay the tax, plus having received the dividend annually they are responsible for finding the highest interest savings account and making all payments for fees and rent and living. It's all good financial education. I was brought up "never a borrower or a lender be" and don't believe in any form of debt unless avoidable. I've built reserves in my company as a savings mechanism for this purpose for some years.

There are so many known unknowns (on interest rates, thresholds, DCs income, future govt policy) that it's almost impossible to say whether it makes overall financial sense given the interest for the Plan 5 loans is inflation-linked and the repayments are linked to income. (You could only truly say in 40 years time!)

However, it's become abundantly clear from all the recent press about the loan system that people hate having a debt hanging over them, hate seeing the repayments not make a dent in the principal, assign no value to the fact that the loan will be cancelled altogether after a period, hate that the payments go up when they earn more - so nothing like a mortgage or car finance. It seems to be really dragging people down, so relieving your DC of that mental burden and worry seems to be a very good thing to do if you can.

An additional known unknown is whether the govt will decide to cancel all student loans - that seems to be what the current campaign wants to happen. Personally I think this is vanishingly unlikely given the govt finances (& it would be massively regressive). But it is a possibility.

Yes, I think what the person upthread mean re IHT is that if you expect your estate to pay IHT @ 40% then it makes sense to give your DC £ now free of IHT and avoids them paying interest on student loans. Seems a bit daft for them to take out huge debts and then 20 years down the line when you pop your clogs they pay 40% tax as well. If you loan them the money it stays part of your estate for IHT until they repay it - if you right it off it becomes a potentially exempt transfer at that point (so you have to survive 7 years) or a gift out of income, but that's supposed to be for regular gifts so a one-off chunk may not work? Probably need to take tax advice.

I think quite a few people are regretting not paying for their DC instead of taking Plan 2 loans. They were sold as don't worry you won't pay anything back unless you earn enough, but the thresholds haven't kept pace with wage inflation, the compounding interest has spiralled and the debt is now too big for them to help out and pay it off.

@WW3 The repayments have always gone up when grads earn more! Everyone knew this. Hating the contract is just too bad on that front. The interest rates are too high but I HATE the level of debt this country is in. The higher paid who have benefitted from their degrees do have to pay and it’s enabled 3 times the number of students to access university. Far more poor people go and it’s down to this system which followed the vast expansion of the university sector. People moan about everything don’t they but it’s poorer people who are most inconvenienced by taxation. They suffer the poverty trap. It’s not well paid grads. The whole thing got out of hand by over expansion of degrees and employers asking for them when they didn’t need them. Grads are now often disappointed at their earnings but I think it’s too many grads that’s screwing them. Over supply and poor economic growth, plus the threshold of repayment being too low. I’d favour this being increased to average grad starting salary.

This is a really interesting thread. My eldest is only 14 but I’m starting to think I might pay up front.

I had always assumed I would pay for accommodation so that’s a given. My parents did the same for me.

DC have £20k each in their ISAs from my Dad. If they were willing to put that in the pot I could find the rest for fees. I could stretch to the maintenance loan sum from income and if she could get a job to top that up we’d have it all covered.

I graduated in 2001 so my degree was low cost. My loans were paid off by the time I was 28. This was before I had children. DH and I worked out what we’d have been paying on plan 2 at the point we had just taken a bigger mortgage to move and had two in nursery. It was frightening how much poorer our quality of life would have been. We’d have been paying over £500 a month, even more now alongside thinking about how to pay for our kids.

*how to pay for our kids to go to university

I don’t disagree with any of your points, but the students who have all this debt are complaining about all these things. It turns out that in reality people don’t like having a debt which keeps growing because they aren’t paying back enough. (Who knew?!) They seem to have never thought about these things before they took the debt/maxed out on loans to live it up at university. So it’s a cautionary tale really and new/current students shld learn from that and perhaps not pile up the debt. It was sold as “don’t worry you won’t have to pay it back if you don’t earn enough”, but in reality people don’t think they’re ever earning enough to pay it back and even though they often won’t pay it all back they don’t like the debt sitting there next to their name. It wld make a great psychological study!

There was a case study in the paper the other day of a student from a very poor and troubled background who had made it to university (hurrah!) but he then decided to take a year abroad (was studying science - biological I think - so no need to study abroad for a year) and then did an integrated masters - had a job in finance so no need for the science masters. So he had spent 5 years at university, taking full loans for all 5 years and now has a debt of over £80k. For some reason this is all so grossly unfair because he was poor and so had to take out all the loans. In fact, if his family had been middle income and having to top up his maintenance loan every year, they wld have probably said hold on a minute this is costing us a fortune, after 3 years you need to get a job - and his debt wld now be a lot lower.

@WW3 it’s somewhat immaterial about it growing. If sometime has a child at 35, or two, and then work part time for a few years after dc go to school and never work full time, they won’t pay much irrespective of loan and interest. It’s still earnings based whatever the sum “owed”. Of course it’s not owed. It’s an accounting sum for those who are higher earners. However you have to set those payments off against what you could have done with the money if you pay up front. Plus millions never had the up front money in the first place. However 35 years ago, they would not have gone to university at all and didn’t need to. Very good other avenues were open. HE is a mess on many fronts.