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?

@MamblesPambles @Fabfabfab you don’t need to declare the uni fees / maintenance. HMRC aren’t interested. Neither do you have to survive 7 yrs (hopefully you do!) as ‘education’ is exempt from IHT. So if you wish to pay uni fees and maintenance so that your DC avoid the loan, then you absolutely can without any tax issues.
University expects the tuition fees and accommodation costs three times a year in line with when student loans are paid. So either you or the student can pay the university both sums at the same time (three times a year).

@studfin if you do decide to pay up front and your DC requires DSA (disability support) you / your DC need to complete the paper forms for student finance (not the online ones - unless it changes) but cross out all the sections relating to actually needing the loan. DC can’t get disability support (laptops, extra time etc) without ‘applying’ for student finance.

edited so it actually made sense!

@studfin @NotDonna Thanks - I spoke to SFE about DSA a few weeks ago. They suggested registering the student for a Student Finance England account (on the portal), but not doing the part where you actually apply for a student loan. Apparently from the SFE portal / the students account, you can access / download the fillable pdf versions of the DSA forms, that can then be uploaded to them once completed, via your dc’s account.

(Dc2 will be starting in Sept, and we need to apply for DSA for them)

@NotDonna @MamblesPambles @OhDear111 I believe this is the rule that exempts education from inheritance tax: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04175

When a parent pays for their child's education it's regarded as a "disposition for maintenance" rather than a "gift".

@spellbouwned @NotDonna Presumably only the tuition fees (£9.5k per year) would count as ‘education’ though, so the other £11k approx per year (for accommodation and food etc) could potentially form part of the estate for IHT if it is not made as regular gifts from income (well, except for the £3k per parent per year you are allowed to gift and is exempt)?

No, I believe that is a disposition for maintenance too, so long as they are in full time education they are regarded as a dependent child.

If your student yp was living at home, you wouldn't regard the food you put on the table as a gift, would you? It is maintenance.

@spellbouwned yes that’s correct. None of it is subject to IHT. It includes ‘maintenance’ and tuition. So the £9+k and the accom and whatever you decide to give for food etc. HMRC aren’t interested in any of it. Which does make a change!!

If it were otherwise, then they would have to regard all private school fees as a gift for IHT purposes too. Imagine the angst!

We have paid up front. Deal with the DC is that we expect them to pay back the tuition (not the rent and living costs) but that it is interest free.

in reality if we make them pay it back we will invest that money for them.

For people taking the same approach as @pastaandpesto (i.e. investing the fee money and using it to pay off the loan later) I doubt the same IHT exemption would apply because you'd be paying off your child's debt rather than paying their tuition fees and maintenance.

Happy to be corrected on that if anyone knows otherwise though.

As per usual the tax manual is as clear as mud. I haven’t made any enquiries about paying off a student loan BUT it’s certainly worth investigating for those posters who are considering this. It is after-all for tuition and they were in full time education. It should still stand but whether it does or not, I’ve no clue, and for how long? The full forty years?

You don’t need that rule about education being exempt from inheritance tax if you’re paying out of excess income. Payments out of excess income are IHT exempt anyway.

Yes, agree, though the op is considering paying fees from an inherited lump sum, and many parents will pay fees from savings, not from normal income.

Thanks for the link, @spellbouwned . I had a look - and yes, it really is clear as mud as pp says (!).. but I understood it to only include dispositions made up to the 5 April after they turn 18, or cease to be in full-time education, so presumably if you are paying down their loans in a big chunk anytime from mid April after their graduation, it sounds like it’s not exempt… i may be wrong though!

@MamblesPambles I think that’s right. But you can give what you want and live for 7 years. That’s not so onerous!

Absolutely - that’s the plan!

It's easier if you give sooner rather than later. 🙂

Me too. Although I am not sure this can still be the case today.

Very interesting thread, have teens and also considering paying everything for them upfront.

We paid the tuition fees and the accommodation costs and they worked to pay for their food and other living expenses. We had saved since they were babies to pay. I’m glad they don’t have any debt.

I’m such a worrier @LittleLlamai don’t think I’ve put my own peace of mind on the list yet… that’s got to be worth something.

We paid up front with DD having a choice in it. She has been far more responsible about the money than most of those taking out loans. It was / is her money, the loans seem to be seen by many as not ‘real’ if that makes sense. She had worked in holidays for the nice to haves like a holiday or expensive ball tickets.

Only downside is that as self funding she didn’t qualify for a few non-means tested perks at her uni like book refunds. Upsides is no loan company shenanigans and got lots of air miles by paying on credit card and then paying off completely etc.

We only have one DD so makes it possible. We saved from when she was a baby for the fees, I pay maintenance out of savings and income and she has inheritance from GP which specifies it must go towards a house so she is also fortunate to have that. I felt morally I left Uni with no debt as no loans in my day so if I could possibly give her the same opportunity then I should.

It is a mystery to me why UK parents do not plan ahead for college fees. In the US the college fund starts at birth and instead of buying plastic tat and cuddly toys that money goes into the college fund. Ditto holiday jobs, birthday money etc. It‘s not that hard.

@KruelladeVille23 Have you heard of widening access? We have tried in this country to get poorer dc to go to university. Lots of these parents are in debt! They don’t save at all because they cannot or they prefer a holiday. From my position, saving has been easy but I know it’s lucky me. Others are not in this position and often see a property as where they will try and help dc. How many truly have £10,000 a year plus living costs for all of their dc? Not many. Well done for saving but university here has been open to all, not just the minority who can save. Would you prefer these dc were denied access?

It's partly because the system is fairly new- for lots of parents with children going to university now, there either were no tuition fees at all when they themselves were studying or they were capped at £1k. Fees went up to £3k in 2004 and then to the current level in 2012. However, because the introduction of fees was so controversial, all the publicity focused on the fact that you don't need to find the money upfront- the messaging was very much "don't worry- it'll all be covered and it's not really a proper loan at all anyway- your child may never pay it back".

So I suppose a combination of there not being a long-term culture of people saving for fees (as there is in the US) and deliberate political messaging that it wasn't necessary.

We would have but DS had his tuition fees paid for by his employer and a wage as he managed to get on a degree apprenticeship. We were also going to assist with a house deposit. DH and I are currently in discussion as to how much the deposit should be, I wanted to add the money put aside for tuition but DH does not want to. DS pays a little rent which we don’t need but it was to teach fiscal responsibility.

This is our thinking. Increase the house deposit by the amount of the student loan. At least it's still their money in the form of equity. Once you've paid it to SFE the money's gone forever even if you end up not working for several years like me.