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?

I'm not really sure why IHT keeps coming up as being an issue.

If parents are in the position to pay fees for their children in the first place and are in the group affected by IHT then they are clearly fairly well off. In which case if they then died within 7 years the DC would have assets to pay off the loans/pay the IHT anyway via the inherited funds.

Although personally I don't think putting the money in an isa instead is quite as good an option as not taking the loan in the first place. Yes of course there is a chance that the DC never earn much and therefore never pay much back however hopefully that won't affect many people at all. The biggest downside is that teenagers and large amounts of cash in their name which they are legally free to spend as they choose are not always the greatest of combinations..

@Travelerss I have seen lots of times on threads on here, people asking how much is reasonable for their dc to have for living expenses / food etc - more recent threads, I have seen people saying that their dc allowance is £500 per month at uni, or people saying that the dc has the maintenance loan for food and spending money, while they pay the rent. I’m not sure what the minimum maintenance loan is (from memory I thought it was about £5k per year, maybe £4.5k?).

If it is £4.5k, then for (maybe 30 weeks at uni?) that works out at £150 per week - and the student may have to pay for food out of that (if self-catered), or not (if fully catered). We did the calculation the other way round… ie what sort of level of allowance could support a student lifestyle at uni. So we pay dc (year 3) an allowance of £300 per month at uni, and he has to buy all food, and transport, and socialising and mobile phone contract and whatever else he needs to pay for. Essentially this level of allowance means that he has to budget and prioritise his spending, perhaps far more than those with an allowance of £500 pcm, or those who just allocate the min maintenance loan for food & monthly spending.. Obviously those students whose parents can’t afford to pay for accommodation entirely, or contribute much to an allowance, will be living a much much more frugal lifestyle on the student loans, and maybe working part-time during term time or holidays to support themselves. (My dc also works during hols).

My dc is still far more comfortable than I was in my university days (I was on a course that required huge expenditure for equipment and materials, and my parents didn’t have much money, so I wasn’t able to ask for money from them, and I ran out of money completely in the winter of my second year (I had no money even for bus fare to a hospital appointment on the other side of the city). Fortunately for me the very first student loans were introduced then (it was £450, can’t remember if that was a term, or a year?) - but a year or so later the interest rates on the loan were way over 10%… so quite an incentive to pay it off quickly.

I think about £500 a month term time only (c£125/£130 a week) is fairly typical. A lot of students live on minimum maintenance loan and their parents pay their rent. £130 a week is £4,000 (assuming 31 weeks) and so if you give your child £130 a week term time only then they are living off less than the minimum maintenance loan.

I think maybe it is something that parents who are currently in their mid-late 50s, or above, are thinking about. Me and dh are in this group - we benefitted from having no student loans (apart from my tiny one), and having tuition fees paid by the council, and when we were first buying a flat / house it was usually only about 3x an annual salary. My dc are not likely to have massively high salaries, and a 2 bed flat near us is typically around £350k, while a 3 bed house is usually around £750k (although possible to find some around £500k).

When compared with the advantages dh and I had, just by virtue of being born in the late 60’s, I think we are morally obliged to try and pass down that benefit that we have accrued - so having a financial strategy that carefully balances what our future needs might be, while reducing the IHT burden on our estate (especially as pensions will now form part of the estate for IHT) and thereby maximising what we can pass on to our dc (both before and after death) seems really important (especially in the context of dealing with probate etc for parents - it brings it all very much into mind).

Sorry for long post - I suppose what I’m saying is that IHT planning is likely to be a common preoccupation for people in their mid-late 50s, with an estate likely to fall into that bracket!!

Yes! However, we only give our dc £75 per week during uni terms, and he is self-catered, so has to buy food etc with that (and I think he may have to pay his share of bills as well). He manages okay, and he tops up his discretionary spends by working in the summer hols (which is also good for his CV).

But there is an assumption amongst a sub-set of uni parents that the maintenance loan is for living costs (excluding rent), which leads to a very un-student-like (and well-cushioned!) existence, in my view!! My dc says that going out drinking / to clubs is hugely hugely expensive - I do wonder whether a lot of students who are regularly spending £50-£100 a week going out really understand the fact that they will be paying for this for 40 years, and it may seriously financially squeeze them at key points in their lives (when trying to pay for nursery / mortgage etc, or trying to support their own dc through uni).

I suspect the perception of ‘free money’ also plays into this, a bit. If the maintenance loan is seen as spending money, then it’s easy to see how that might affect how the student manages their finances.

We are debating this at the moment too. But have an added dilemma that it is looking very likely that one DC will likely go to university but the other won’t, as DC1 has been offered a degree apprenticeship. Although we have the funds to avoid loans, I’m struggling to see how we can be fair between them if we pay fees etc for one when the other hasn’t needed them through their own gumption.

Thinking of putting it in their names, excluding it from our estate.

That has it’s own set of risks but that’s down to them if they want to piss it away.

I agree entirely as someone who was born in the early 70s and had a similar path. However my point is that the only way to avoid IHT on that particular chunk of money is to give it as early as possible.

If you die within 7 years the money will have IHT on it whether you've given it to your DC or whether its still in your own account.

The government can at any time change the rules. For us this means no longer being able to pass on a pension free from IHT and the threshold for loan repayment having been frozen. Both these changes will/ would have been detrimental for our child. Who knows what other changes the government will bring in.

We pay a lot of tax, have done so for most of our lives and see no reason to give the government even more on death if we can legally avoid it. They may inherit nothing much if both of us need care later but since they are in a very privileged position now anything left will be a bonus.

If one child needs support at university and one does not one could have a larger house deposit to balance things out.

We were advised over 25 years ago (when DC1 was a baby) to start college funds by the PIL’s financial advisor, so we did. Both had about 3/4 of the costs saved for when they started and we’ve topped up the rest (both chose integrated masters degrees, which meant an extra year).

They’re both incredibly grateful that they have graduated / will graduate with no debt. They both worked before and during uni to save extra so I don’t think it’s made any difference to their work ethic.

We are paying upfront.

As a recent poster says, we didnt start from a position of giving the equivalent of the maintenance loan for living and pay the rent on top of- as that would have been in excess of £15k and I don’t believe students need that.

Their rent (2nd yr) is about £720 a month , 12 months. So it’s about £8.5k. And then we give an additional £3.5k which is for everything else. It is split into 3 payments. They can view it as £100 per week for 35 weeks, or less if spread across the 52 weeks. And to be honest it’s been plenty so far and enabled a couple of holidays and going to things like Balls. They seem to spend about £35 a week on food, often a bit less.

If we were taking the minimum maintenance loan, I’d either be just topping up to full maintenance loan level (not paying their rent and then giving them all of the maintenance loan to live on) or better still, paying what Incould afford and then taking LESS than the full minimum maintenance loan.

What surprises me, is that parents who contribute often take more loan than needed too. Why? Why not just have the kid with a but less money and less debt? In my view, many kids have too much - significantly more than needed. Fine,I you’re fully funding all of it and can afford it and there’s no debt. But why give them more which includes more debt than needed. Seems so odd. And I think it’s because peooke often just haven’t done the maths and thought it through. Those extra odd thousands accrue a lot of interest over a lot of years. And those kids could have had £25 a week less and avoided it…and been no worse off really.

Yes, I agree - we are paying upfront and using my income (topped up by dh’s) to do so. We are also hoping that as they are ‘regular gifts out of income’ (rather than savings), then they will never be subject to IHT, regardless of when we die.

I understand your point about wealth - and I know we are incredibly fortunate to be able to do this - but the only reason we potentially have to consider IHT is that we are asset-rich, due to our ages (and the fact we got on the property ladder when we did, and moved to London before all the house prices increased). Oh, and the fact that my dh’s pension will be added to the estate for IHT, from next year. Other than that, we holiday in the UK (due to cost of flights), food shop in Lidl to save money, and I home dye my hair, and have stopped having hair cuts! We have also cut back on spending generally, to enable us to pay for dc. We will be having one year of overlap from Sept (year 4 & year 1), so have been further cost-saving in anticipation - i think it ma be quite painful!

It is about IHT planning - i.e. minimising the amount of IHT paid - rather than worrying about DCs having an unexpected bill. (Though the latter can happen if the main asset is the family home and it is either taking a long time to sell or the DCs don't want to sell it).

IHT is only one factor in the decision making process, but it is a factor that was never covered by Martin Lewis when he cursorily encouraged better-off families to invest the money rather than pay up front.

Not if you've paid the uni fees directly - as discussed up thread, covering your child's educational and maintenance costs while in full time study is not considered a "gift" for IHT purposes.

It isn’t a sweeping statement it says ‘most’ and was intended as explaining just one experience. DD knew of many who couldn’t budget, blew too much money as soon as they got it then struggled, a worryingly large clutch of young people who had a mindset of ‘I’ll never pay it off so it didn’t matter how big the debt gets’ as well as those who lived frugally, those who juggled studying and jobs.. She was the only one who paid up front that she knew of (apart from Intl students) but it wasn’t something you tended to advertise too wildly but she got the sense of who was on loans when rent payments didn’t tie up and fellow students mentioned waiting on loans

I know!

My points were

1. If its a regular gift out of income you don't even need to rely on the education exemption
2. If not then whether you gift the money to your dc now or whether you keep it in your own account, IHT is going to be payable on that money if you die within 7 years once you've used your allowances.

My overall point was that people saying "oh but if you die within seven years your children will pay IHT" are making a point out of nothing since the IHT would be payable either way.

IHT is only relevant to the question of whether you use your excess, IHT liable money now to pay off your children's debts. Some will prefer to do that and others will prefer to keep money in their names and spend it on their DC in other ways.

But gifting it now starts the clock ticking now, whereas holding it in your own account and gifting it on graduation starts the clock ticking in 3+ years time, increasing the likelihood of dying within 7 years of gifting.

Morbid, but true.

And I think we need much more emphasis on the specific pathway question.

Too many young people, especially those from backgrounds where family members have not attended university themselves, are being sold “the Uni Experience”. They leave school with mediocre A levels and are accepted on an uncompetitive course at a University which takes anyone to fill places. After three years in which they are required to produce one essay a term, they emerge with £60000 of debt and a degree which equips them for nothing.

Prospective students should be told exactly which jobs graduates on their specific course have gone on to do, and at what pay rates, before they accept a place on a course. Why are Universities not forced to collect and publish this information?

The information is already collected and published via the Graduate Outcomes Survey, 15 months after students finish their courses, and the data is summarised on UCAS. It is a blunt instrument though - it is reliant on graduates completing the survey (many don't bother), and there have to be enough responses before data can be published, so results are often only available aggregated by department rather than by the specific course. The results are published in two categories - those that have any job/training etc, and those that have a job/training in one of the "most common" sectors, which I read as a euphemism for "jobs related to the degree".

More data is collected than is routinely published, but researchers can retrieve the detailed data from HESA. It is the source of published stats on graduate earnings, and the Government use it in policy setting.

More info here: https://www.graduateoutcomes.ac.uk/

And here: https://www.hesa.ac.uk/data-and-analysis/graduates

But it needs to be easily accessible in a format that school students and their parents can easily understand. And if hardly anyone completes it that needs to be clear as well.

You cannot even sell a toaster these days without clear performance data. Why are we allowing 17 and 18 year olds to embark on a life time of debt without a clear understanding of what they are buying?

The data is published with appropriate caveats - there is also a responsibility on families to read it, and teachers/advisors to point students to it.

The Government will be using HESA data in the new Teaching Excellence Framework: https://www.officeforstudents.org.uk/for-providers/quality-and-standards/about-the-tef/ This will categorise HE providers as gold, silver and bronze, with only silver+ providers able to increase fees. Ratings will be visible to potential students on UCAS etc. Naturally, universities are worried about this and are working to improve their potential scores.

@KruelladeVille23 All good points.

There is a separate thread about law and the postgraduate law qualification, where lots and lots of lawyers were saying far too many DC with relatively mediocre qualifications were being funnelled into these law courses when there was virtually no chance that they wld ever get a well paid law job, because law firms screen out on the basis of those qualifications.

There is a view that people shld be entitled to 3+ years of uni, subsidised by the taxpayer, regardless of their ability to get any sort of relevant or better paid job in the future. It seems economic madness to me - especially when the majority of school leavers don’t receive any sort of subsidy and have to find a job to earn enough money to move away from home.

Lots of people - including MPs - seem to be completely clueless about the money being spent and the tradeoffs that shld be considered. Here’s an article about 3 MPs moaning about their student loans. 2 of the 3 never finished their degree, so all that money and nothing to show for it. One of them who didn’t finish his degree has debts of £93k! How?!!

Can they fix it? The MPs deep in student debt

https://www.thetimes.com/article/06414dab-ba69-4a62-af59-4b82a6ebe3cd?shareToken=07e127c4e437624d021e182daba88618

Gifting it on graduation would mean you've paid three years of interest for nothing which seems a bit silly.

We are just paying it all up front for both DC and they are (in theory) paying us back. In reality we are unlikely to make them pay anything back or will then invest it for them if they do.

I agree, but I think the people who do this anticipate getting a higher rate of return on their money than would be incurred in interest. The current Plan 5 rate is 3.2% and you can currently get 4.5% in a best buy 3 year fixed rate savings account. Minus tax of course - which will be particularly significant for high earners. ISAs are tax free but pay lower interest, and high earners may already be using their full ISA allowances.

A pp said she was investing her pot in medium risk stocks & shares, which may or may not outperform savings interest over 3 years.

Either way, I would personally view the benefit as pretty marginal for the hassle/admin involved.

I do wonder if the very busy Martin Lewis puts his money where his mouth is and spends all of his own leisure time opening and closing bank accounts, changing supplier, and chasing deals, or whether he pays a personal assistant to do that for him. 🙂