Should we fund university or give money later on

[Itsalwayssunny1]

Inspired by the poster asking about how much it costs a year to fully fund a child at university; wanting some thoughts on funding. We are a few years away but quite close now, and in the lucky situation to be able to save money towards university so child will not end up in too much debt. I remember when I was at university the loans were cheap and people would take the loans even if parents had money to fund them. But my understanding is the current loans are different. Our thought is do we give child money for university and come out with little or no debt; or do we save the money to help them later on in life perhaps to go towards home deposit.

The current Plan 5 student loan in England accrues interest at RPI from day 1. You start paying off the loan on any amount you earn over £25,000 (the government can change the threshold). So it’s not very cheap debt.

So on the face of it , why would you have the debt if you could avoid it?

Well it depends on what your dc might do later. Remember a student loan isn’t counted as debt when you apply for a mortgage so it doesn’t affect credit rating. If your dc might able to get on the property ladder faster because you are able to help with a house deposit, for example, your might have better access to cheaper mainstream mortgage deals . This is because while having a student loan slightly reduces your net take-home pay, a big cash deposit drastically lowers your Loan-to-Value (LTV) ratio and that often opens up much better deals with mortgage providers - saving you interest in your house over the long term

Another thing you can do is open a JISA (junior isa) which your child can transfer to a First time buyer ISA (or LISA if she turns 18 before August 2028) when she is 18. That way if you are saving for a house deposit in particular, your dc would get a bonus of (i think) 25% free from the state when she cashes it out to help pay for her first home.

The only time I’d say it makes sense to take the loan is if your dc may work abroad. Both my DH’s cousins moved to Spain and Germany and never had to pay a penny of their loans.

Couldn’t disagree more! Invest the money, take the debt. If you have money coming out of every orifice, fine, otherwise invest the money and give them a house deposit.

I agree with the above, as Martin Lewis explains (you can find his podcasts on this topic to explain it in further detail). Though it’s a personal choice. @WavyDaizy your cousins have broken the law by leaving without paying—they are still supposed to pay (not finger-wagging at you…just making clear to OP that this choice is illegal).

PS I’m aware that last bit is very risky advice! Both the people who went abroad were initially had been bumming around on minimum wage working in bars. Then one got a job self employed helping out a relative’s business - the relative paid a small allowance and provided a home, paid for bills etc. I’m not sure how the other one has managed.

In theory going aboard doesn’t let you off the debt - and student loan company can take out a ccj against you in the Uk and can try to track you down.

Anyway it’s unlikely your dc will fall into this bucket.

So my advice would be; put the savings in a JISA for now, get dc to move them to a LISA or first time buyer isa when they turn 18. And let dc take out the loan.

What are you on about? Read my post again. That’s what I said - on face value you’d say “why take out the debt if you can avoid it?” But then I explain the benefits of investing it in a JISA and converting to a LISA later, because having a house deposit is potentially much more beneficial than the savings you’d make by avoiding student loan.

People are hearing “student loans are expensive “ (they are) but mortgages are MORE expensive so you take whatever steps you can to manage your future housing cost.

Also , although student loans aren’t counted as debts in the same way as ( for example ) credit cards , there’s an “affordability” test when applying for a mortgage .
So any student loan repayments will need to be declared at that point , like any other outgoings.
Martin Lewis’ podcasts/ website very informative .

@U53rName yes I know they did! I shouldn’t have mentioned this. I would guarantee they aren’t the only ones who disappeared though. If you bum around on a low income for long enough, it appears you kind of disappear. To be honest, I’m still not sure either of them earn over 25k as they have found ways to avoid getting paid in cash - a bit like all the errant dads we hear of MN who contort themselves to avoid paying Child support.

If It makes you feel better, neither of them found any use for their degrees - it was a waste of three years! And, There is 0% chance they’ll ever return to the UK.

You said - the only time it makes sense to take the loan is if your kids will work abroad

… I say take the loan.

So I think we have opposing views.

Not sure what you are on about.

Thank you, that is really helpful to see what the longer term options are.

We also have the money to pay uni fees after saving for many years. However we won’t be doing that and will be encouraging our kids to take out full loans. It’s quite simple if you compare plan 5 interest rates and current mortgage rates and also the terms of repayment. (Assuming your kids will buy a house). It’s better to take the student loan and save it, invest in a LISA and put it towards a house deposit, for all the reasons mentioned by pp. I have two girls so that also increases likelihood of taking time off to look after children or part time working etc and during that time they would pay little to no loan repayments. I think when Martin Lewis said the only time to pay student fees in full is if you can afford to buy all your kids a house outright he was spot on.

just to say, thanks for this thread. It has been really helpful. I have always been very anti loans, but for the first time I have understood that you can potentially earn more money by saving/investing it than you would have to pay in interest because the interest is capped at the rate of inflation (for the current loans). I also found out about the house deposit LISA thanks to you all.

Also worth mentioning that some students take out the maintenance loan without their parents' knowledge. All that extra readily available money is rather tempting! So they could end up with student debt you don't know about despite your having paid their university costs for them.

@josays yes I think what I’m suggesting only really applies if you have trustworthy kids who are going to take your advice and do what you suggest re investments and buying a house. I have a few friends who have said that their kids would blow any money they gave them in a year on holidays and vices so I totally get why they would be more cautious. And of course it would be a bad decision to start a LISA only to have your kids earning minimum wage, never being able to buy a house and renting for the rest of their lives. So I do realise all of this advice relies on having children who at the age of 18 have similar life priorities and financial goals as their parents.

I was a pretty sensible young person but I still decided to take out a student loan in my final year despite my parents fully funding university for me. No regrets! It definitely wasn't what my parents would have wanted though.

We've gone for funding university but depends on your circumstances. One thing to bear in mind is they can still take the minimum maintenance loan without your involvement on top. Alternatively if you give a child control of money at 18 they can spend it on what they like. You can give them money for a house at 18 and they go out and spend it on holidays and partying. So if doing that you need to be very certain your child will be sensible. It also would make them ineligible for some benefits if savings over £16,000 and severe ill health stuck which nobody thinks will happen to their child but sadly it can.

Another thing to consider is inheritance tax if you are liable and your life expectancy - if they don't buy a house until 30 and you gift the money then and you die within 7 years there could be a hefty inheritance tax bill to pay. Depends how your wills are set up - ours are both set up for everything to pass to the children apart from the house, other people have mirror wills where on first death it passes to the other which gives more protection. We have 2 nationalities so ours is complex.

One further issue which I don't know the effect of is divorce. If say your DC got married bought house and then divorced which obviously nobody plans on but is not uncommon could the partner take part of your gift? Education obviously they couldn't.

Also psychologically it gave our DD great piece of mind paying for education and helped ensure robust mental health at university. Also depends on how many siblings they have and making sure can do same for all. We are also certain she would have been required to pay it all back - if there are any doubts over that a loan maybe better.

They should still have repaid the loads. They acted illegally and the debt remains with them and on their credit records.

A LISA would be the best option as the government adds 25 percent to their pot.

Avoid the debt if you can. Or let them take the tuition loan but not the maintenance one.

Or let them take the tuition loan but not the maintenance one.

This is poor advice. The amount repaid per month/year depends only on earnings and not the amount borrowed. Borrowing less is likely to only benefit higher earners as they will repay all their loan earlier, saving interest. Low earners will never repay in full regardless of the amount borrowed.

People always say better to put a deposit on a house. However, most starting salaries would either not be sufficient to raise a big enough mortgage and/or make running that house affordable (costs of utilities, insurance, maintenance etc). In addition many won’t know where they want to live / won’t want the responsibility of being a homeowner. This especially so if they are a single person. Therefore I’d argue it’s better if you can to fund the university fees/costs to enable your DC to graduate debt free without deductions from salary - buying a house at that stage will be so far off the horizon

Over the last five years, I've worked with lots of young people who are five to 10 years post-grad. I cant tell you how depressed and defeated they felt about the size of their student loans and the knowledge they'll be paying it their whole lives.

With sacrifices, I'm able to pay for my kids uni (acknowledging that most people aren't able to do this). I don't want them anywhere near the student loan system if I can help it.

There are some catches to be aware of with the LISA, though. It can only be used for your first home (unless you are over 60 or terminally ill), otherwise you have to pay a penalty to withdraw money. If your first house is bought jointly with someone else, you can only use it if you are both first-time-buyers.
The penalty is 25% of the amount you are withdrawing, which they claim is to pay back the 25% contribution from the government. However, suppose you have £8000 in there, plus £2000 from the government, the 25% penalty would be 25% of £10000, so £2500. Hopefully the ISA would have seen enough growth that you wouldn't actually lose money overall, though.

It's still a good bet for many people, but you should be aware that there are some circumstances in which it won't work so well.

I’d say that it’s not purely about the exact finances of it, to the penny.

Yes, calculations of interest to be paid on loan, interest that can be earned on investing the loan, exact hiuse deposit size, LTV interest rates on mortgages based on suze of deposit, salary size and repayments……but recognition also needs to he given (and value attributed) to the fact we don’t exactly know the careers our kids will do, where they will live and housing costs, or full career trajectory. And additionally and vitally, our choices can increase or reduce peace of mind for both them…and us (the givers of this money) both now and later. It isn’t purely a spreadsheet calculation.

We’ve been fortunate. We saved £40k per child in Junior ISAs via the child benefit money which we didn’t spend and by putting a small sum per month in. This was to be their house deposit money. We also saved for uni fees and ensured that from our savings before and during uni we could pay £60k. All v fortunate so far.
And then an additional bonus came our way - Grandfather said he’d like to gift £60k for each grandchild now.

So here was the choice - take the loans and invest them, and sit in £160k for each child for a v decent house deposit for the future.
OR, use £60k to cover uni costs and have £100k for a house deposit money- still sizeable but not so big. And certainly not enough to buy outright.

We went for option 2. Yes, the required mortgage will be bigger and yes, there is a chance that they wouldn’t have ever paid off all their student loan and that if they’d invested the money it would have grown by more than the costs of it. BUT, we also placed value on the fact the DC would go through uni knowing they had no student loans and probably more important, we would have the peace of mind of that too - that later when they are in their 30s with kids paying childcare, and in their 50s paying uni fees, their own loan repayments would never need to be factored in.
We have peace of mind for now. We have peace of mind for the fact we can help with a decent deposit, even if not as big as if we hadn’t paid uni fees.
And I think we’d have done the same without Grandatgers gift actually. It would have meant the deposit donation we could have given would be £60k smaller but still £40k.
Fully appreciate we’ve been fortunate to be able to save and also to have a GP gift money.
But the point is, it’s not a purely monetary choice - as everything, decisions rarely are, but involve other things we value too, such as our peace of mind now and in the future. There’s rarely one answer that fits all as people place different values on many of the non-monetary aspects.

Awesome advice! Take £50k from the UK taxpayer, and sod off abroad without repaying a penny or giving the UK the benefit of your expensive education. No wonder the country's in so much debt :-(

You still need to repay if working and earning overseas as has already been pointed out.