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 think we could possibly end up in the same situation. Too early to be definite but DS says he doesn’t want to go.

I’m not sure how we could balance it properly but we think we would help DS out a bit with his travel plans and fund getting him on the road to increase his employability.

It’s a tough one though.

Same here. Investing the money in equities over the long term will beat or at the very least match the amount repaid.

I just feel uncomfortable about handing over £50k when we have no real idea how much DC will repay.

DS is likely to be a high earner but I have concerns about AI and jobs in the not too distant future. I'd rather put the money towards a bigger deposit or keep it invested/saved as a fund to cover periods of unemployment which I'm sure will be frequent sadly. The economy and job market is dire and I can't see it improving any time soon.

Regular gifting out of excess income is immediately IHT free and is a great way to pass on substantial sums. It can go straight into the DCs ISAs.

💯

I thought 3k was the maximum a year?

That’s one-off gifts. If you can prove it is a regular payment, and out of your income (rather than savings) then it is not seen as part of your estate for IHT purposes. I am not a tax professional though, so best to double check on the HMRC gov website for the details of the rule.

---

Tried edited to post the HMRC link, but it didn’t work, sorry..

This is the rule for regular giving from income: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231

Yes I literally said this way back in the thread.

My whole point was that IHT isn’t an issue that should stop parents paying.

At this time IHT rules are as being posted here. However there has been talk of changing the law. That could mean no regular gifts from income are exempt and a lifetime limit on what you can transfer. IHT is a reason for parents to pay now if they can afford it as IHT would be larger than any possible difference in investment gain.

You can't pay directly into your child's adult ISA (with the exception of a Lifetime ISA, limited to £4k). You can, of course, set up a standing order to their current account and they can choose to redirect the money to their ISA (or spend it 🙂).

You can pay directly into anyone's ISA if they give you the account details. We are already doing this for our grandchild. Of course if it's your adult child's ISA they can promptly take it out again.

Presumably your grandchild's ISA is a Junior ISA? You can't do that for an adult ISA. The funds can only come from the person who owns the ISA (though parents/grandparents can pay into a Lifetime ISA).

Yes it's a JISA, dont think any other ISA is available to under 18s. Parents opened in, so far we've supplied most of what is in it. I've checked, I was wrong about the ISA once they get past 18.

We've done exactly that. Standing order to DCs current accounts set up purely for this purpose, and from there DDs into ISAs.

DCs have been financially educated since they were 15/16 and understand the power of compounding equity returns over the long term.

I've got zero concerns that they might spend it all.

We've told the DC they're disinherited if they piss away the money we've given them for their ISAs.

Half joking

We paid all upfront. No loans at all. We can afford it and I think saddling your kids with 9% additional tax for the rest of their working life potentially is insanity if you can avoid it.

At least until their final year you can say that pissing away money means no financial support for the rest of their university life. When they get to their final year remind them they are likely to need a deposit for a flat rental and maybe a guarantor for the rent, we certainly had to do both. They were told if they didnt get most of the deposit back when they moved on we wouldnt fund another one.

Weak parents get children who sponge off them forever. Then when the last parent dies if there is no money left they have a very rude awakening.

We paid for our children’s tuition fees and living costs, and they don’t have loans. One more child to go if she wants to go to uni, and we will do the same. We didn’t give a moments thought to inherited privilege. Of course they are very fortunate but that’s no reason not to do it. The potential problem with wealth for me, is if your kids become lazy and take it for granted that they are always going to be bailed out; don’t bother working hard, and just expect a free ride. So far that hasn’t happened. My eldest two have jobs and they work hard and realise that funding from us is not a bottomless pit.

We, and grandmother, paid up front a decade ago. (There are some IHT benefits of grandparents paying.)

There were similar threads back then, often showing a marked difference between posters from London and elsewhere. We faced a real pinch point when children were born and we were trying to buy a larger house. Car was a grandmothers elderly and tiny run around. We made trips to affluent Surrey to buy suits from charity shops. I took a Saturday job in an estate agent in part to get to know the property market better. The issues eased when kids started school and I returned to work, but during this time a "graduate tax" would have killed us.

The struggle to get on/move up the housing ladder is even more acute now, the workplace is more international, and job future is even more uncertain. Those acute pinch points are likely to affect more.

As it turns out, Doctor DD was working in a low cost area and so was able to buy a house during her first foundation year, with affordability calculations helped by the absence of loan repayments. DS lives in a high cost area, and does not expect to buy anything any time soon. Both are facing job insecurity. Newly qualified doctors are unable to compete for entry level Trust jobs with more experienced doctors from overseas, so DD is having to leave for Australia. (As for training...ask our Prime Minster!) DS faces the drying up of the academic jobs and City jobs for which he is well qualified. Plans B and C are now in the mix.

Ten years on we are all very glad that there are no graduate loans to be factored in.

People on previous threads used to talk about deposits for property. I would argue that the more important thing now is the additional marginal salary that allows a more flexible approach to job search and career progress.

When DC went to University they could see that paying their costs involved us cutting back. They followed our example and were frugal. Lots of money can be saved at the margins. Coffee made at home, rather than taken away. Food cooked from scratch, rather than Deliveroo. Clean the rental property at the end of the tenancy to ensure you get your deposit back, and return the broadband box. Research utilities, book fares in advance, get a bike. Look forward to a big night out rather than consider it routine and instead based your social life around cheaper University societies. If they had not been we would have expected them to get jobs to afford extras.

I'm coming back to this thread because it prompted me to do some re-evaluation of our planned strategy to NOT pay the fees upfront and to instead keep the money invested.

Paying tuition upfront is irreversible, whereas taking the loan keeps the decision open. The upsides of retaining liquid capital is that we preserve the ability to decide later between several potential uses of the same pool of money e.g. repay some or all of the loan, support a deposit, back a business etc. This is before you even begin to consider the question about their future prospects and the likelihood of them repaying it.

Unless I am missing something, the only meaningful counter arguments to this apporach are:

• If the liability (i.e. the loan) grows at a faster rate than the capital
• IHT planning

This thread has been helpful because it has made me question how realistic the net growth target is. Over the recent years we have been averaging 5-6% net, so comfortably above the current 3.2% plan 5 rate, but it wouldn't take much to swing that balance. Tax is obviously a big factor in that, so we are now considering that we will shift the loan-equivalent sums into ISAs in the DCs' names, which means even basic fixed cash ISAs can marginally outperform the plan 5 rate.

The obvious downside of this is that we lose absolute control over the money, but we are comfortable that the combination of strong relationships and the tacit risk of future disinheritance (!) would be a sufficient deterrent to them spunking the money.

If at any point the liability starts growing faster than the investment, then the loan gets paid off. Simple. But unless it does, the DC have a protected capital base that may well be able to be put to better use.

So that leaves the only potential benefit as IHT planning. I'm reasonably confident that we will outlive the final DC's graduation by 7 years, but if we don't, the amount they stand to inherit should we die early, before we start drawing down on retirement investment, will dwarf the IHT due on this particular pot of money.

Does that make sense, and am I missing anything?

Your DC can only put 12k into their ISAs. That will cover fees but are you planning to find their maintenance costs too as it wont cover those plus fees

I think the 12k limit is for cash ISAs but they can utilise investment ISAs up to the £20k limit

Good point, the cash element will be limited to £12K from next April.

Based on this year, where the total loan will be £14,838 I think (tuition + minimum maintenance), that means around £3K will need to be in stocks and shares rather than cash.

We pay fees and rent/maintenance for both of ours -it just seemed sensible. We have saved for them since they were born so they each have a healthy sum for a house deposit as well.