University fund

[Snoopbeef]

Hi just starting to think about this for my daughter (only 11).

We have a kids Isa set up and are paying into it for this purpose. I want it to be in her name as me and husband are bad with money and don't want to end up dipping into it.

If we continue at current savings rate we should have enough for fees and accommodation.

I wonder how other people save and if it's worth covering off uni costs or just taking the government loan.

Any thoughts advice welcome as I feel a bit unsure on how to manage for the best.

Make sure you really understand the finance behind what is confusingly called a student loan, when really it works more like a tax than a loan.

Have a read of Martin Lewis's Guide

In my opinion, it is rarely a good financial decision to not take out student finance.
If you are able to save for your dc, then let them take out the loan and give them a lump sum as a deposit on a first property - far better to be paying back student finance than the same amount on a mortgage (even if they can save enough of a deposit to get a mortgage).

Remember student finance payments are made as a % of your earnings, not a % of what you owe. Unless you are confident your dc is going straight into higher rate tax bracket, then it is rarely a good idea to not take the loan.

Also be aware things are diferent in each of the Home Countries.

Don’t pay the fees, get the maintenance loan and then top it up so they have enough to live in. If you want to save for your DC then save and help them with a deposit for a property after they’ve graduated.

"If you are able to save for your dc, then let them take out the loan and give them a lump sum as a deposit on a first property - far better to be paying back student finance than the same amount on a mortgage (even if they can save enough of a deposit to get a mortgage)."

It's a bit more nuanced than this.
If the kids will be lucky enough to land a high-paying job, which guarantees paying all of the loan (say high-flying lawyer, medical doctor, a City job, etc) then it will be worth paying off the student loan quickly, as the interest rate is not low.
At that point, the question may then become: is it worth paying it off, or using that money for a deposit on a property? That will depend on circumstances - e.g. if the kids have no idea where they will want to live and work and could move around a bit, then buying a house is unlikely to be the best choice.

I dont know why people are saying take the loan.

I am the only one of my friends who didn't take the lian, which means every job and pay rise i get to keep 100% of it, whereas student finance takes a huge chunk of it every month. Also means every bonus your dc would get, they wouldn't get it all. My friends hate it and are desperately trying to pay it off quickly.

@Lazypuppy

I dont know why people are saying take the loan.

I am the only one of my friends who didn't take the lian, which means every job and pay rise i get to keep 100% of it, whereas student finance takes a huge chunk of it every month. Also means every bonus your dc would get, they wouldn't get it all. My friends hate it and are desperately trying to pay it off quickly.

How did you pay the fees?

@Lazypuppy my DP left with very little debt from uni and cleared it quickly.

The costs involved now make it almost impossible not to take the loans. Also, the way they pay back is different to older student finance loans.

@idril i worked for 2 years from 16yo and saved all the fee's, used to work about 20hours a week during a levels and nearly full time during school hols.

Then at uni, my course only had 4 lectures a week so i worked 20hours a week in retail and about 10hours a week in a bar to give me spending money. Thrn worked full time during the summer holiday as i stayed in my house in my uni town.

I had a great time at uni, and coming out with zero debt was worth it. Like i say, every bonus and payrise i get now i get the benefit. My friends hate getting payrises as they see barely any of it, it isn't worth it and psychologically it isn't 'just a tax' to them and they all regret taking the loans

@Lazypuppy

I dont know why people are saying take the loan.

I am the only one of my friends who didn't take the lian, which means every job and pay rise i get to keep 100% of it, whereas student finance takes a huge chunk of it every month. Also means every bonus your dc would get, they wouldn't get it all. My friends hate it and are desperately trying to pay it off quickly.

I think perhaps your friends are over-exaggerating? You only pay back student loans at a rate of 9% on everything you earn over a certain income (about £25,000 iirc?) so they'd still get over 90% of their income and any bonuses?

Your work-ethic is commendable, but unless you're earning over £40k post-gradiations it's often not recommended to pay for your fees/pay off your loan.

[quote Lazypuppy]**@idril i worked for 2 years from 16yo and saved all the fee's, used to work about 20hours a week during a levels and nearly full time during school hols.

Then at uni, my course only had 4 lectures a week so i worked 20hours a week in retail and about 10hours a week in a bar to give me spending money. Thrn worked full time during the summer holiday as i stayed in my house in my uni town.

I had a great time at uni, and coming out with zero debt was worth it. Like i say, every bonus and payrise i get now i get the benefit. My friends hate getting payrises as they see barely any of it, it isn't worth it and psychologically it isn't 'just a tax' to them and they all regret taking the loans[/quote]
Fees are £9000 per year. Then you have living expenses on top of that.

That's a lot of money to earn. Especially if you are on a course that is more than 4 lectures a week.

Personally, I'd rather my children get the loan for the fees and pay it back if/when they are earning more money rather than having to stress about finding the money whilst studying.

graduation, not gradiation!

@Snoopbeef

Hi just starting to think about this for my daughter (only 11).

We have a kids Isa set up and are paying into it for this purpose. I want it to be in her name as me and husband are bad with money and don't want to end up dipping into it.

If we continue at current savings rate we should have enough for fees and accommodation.

I wonder how other people save and if it's worth covering off uni costs or just taking the government loan.

Any thoughts advice welcome as I feel a bit unsure on how to manage for the best.

This is great idea. Please note that putting it in her name won’t stop you from accessing it and taking money out while she is under 16. But at age 16, she gains full control over the account and can withdraw all the money.....do you really want to give a 16 yr old that kind of access to a large sum of money? There are other options, speak to a banker.

The U.K. student loan is a loan, not a tax. It just happens to have a high interest rate, repayments are only due if you earn above a low wage and the balance is discharged after 35yrs. So, it doesn’t operate like a tax at all. Martin Lewis is entitled to his opinion, but he’s over simplified things to sell student finance to the public. It is still a debt the person has to live with until their 50s. The U.K. government has a history of changing the student loan system to less favourable to new students. Freezing the threshold that repayments begin at. Allowing eyewatering rates of interest. Extending the repayment period from 30yrs to 35yrs and now discussing extending it again to 40yrs.

Graduates are faced with either choosing a low wage future to avoid paying it back entirely, or a better than average wage and paying back far more than they borrowed. Rock and hard place.

Personally, I think the peace of mind of graduating debt free is priceless. If you can save for her fees/accommodation that is a good thing. Perhaps you can then keep saving once she is 18 and in ten years when she is 28 then present her with help on a home deposit. If you can save now, why stop when she starts university? It’s not an either or choice.

@PlanDeRaccordement On the extent to which it's a loan or a graduate tax: how many other loans do you know which must be repaid only if you earn above a certain threshold, and which get totally written off after 30 years, without impact on your credit file and without preventing you from getting other credit (loans / mortgages / credit cards / etc)?

I can't think of any, to be honest!!!

I think Martin's advice is pretty sound. You say it's still a debt and people have to live with the consequences; OK, what are these consequences for someone earning just below or just above the minimum repayment threshold? AFAIK that they will pay zero to very little. So?

Yes, if you earn loads you're better off paying it quickly, but it all comes down to your alternatives - most students do not come from wealthy families that can finance upfront the cost of 3-4 years of university course.

Another matter is the ethical implications of taking out a loan you know you won't repay. If you won't repay it because you have chosen a profession that is poorly paid, despite its importance (teachers, nurses, etc) it's one thing. If you took out a Mickey Mouse degree from a third-grade university just because you knew taxpayers would fund 3 years of partying for you, that's a separate matter.

@ParentOfOne
Loans have all kinds of terms and conditions. Just because the U.K. student loan is subsidised by the government and has special rules, that doesn’t make it not a loan! Let me ask you, how many taxes operate like this? None at all ever. The U.K. student loan is correctly named and has more in common with other nations student loans than it does with any kind of tax anywhere.

Let’s get this straight you dont have to be earning “loads” to have to pay it back, only be earning more than average. Anything over £25k....For graduates the average starting wage is £24k.

You asked You say it's still a debt and people have to live with the consequences; OK, what are these consequences for someone earning just below or just above the minimum repayment threshold?

For those just below, they will be discouraged from taking raises or promotions that might increase their income to even being the U.K. average wage of £30k per year. For those just above, they will be paying money every month that would benefit them better if it were put into pension savings or savings for a home deposit. They will fall further and further behind their peers in financial security as the decades pass. 9% of money earned over £25k is a lot of money to sacrifice, especially if you are just over the threshold.

Another matter is the ethical implications of taking out a loan you know you won't repay. If you won't repay it because you have chosen a profession that is poorly paid, despite its importance (teachers, nurses, etc) it's one thing. If you took out a Mickey Mouse degree from a third-grade university just because you knew taxpayers would fund 3 years of partying for you, that's a separate matter.

Agree with this but even though nurses and teachers start out paid in the low to mid £20ks, they do quickly go above the threshold after a few years experience.

In 2020/21, the average salary for a primary school teacher was £36,900. The average salary for a secondary school teacher was £39,900. (getintoteaching.education.gov.uk/salaries-and-benefits)

The Royal College of Nursing has estimated that the average annual salary of an NHS nurse is £33,384.
(www.nurses.co.uk/blog/a-quick-overview-of-nurses--salaries-in-the-uk-in-2021/)

So these graduates going into teaching and nursing may start out below or at threshold, but for the vast majority of their career, they will be over and will be making payments. This would only increase if the government freezes the threshold again....as they are discussing.

You don’t have to take the full loan by the way. My dd took out a small one as she had money from grandparent and got an accom refund from last year. Just take out the minimum you need. The % rate is much higher now than it was when the scheme first started so don’t get it unless vital

@PlanDeRaccordement British student loans have some elements of a progressive tax, because the more you earn, the more you pay; the less you earn, the less you pay (including zero). How many taxes operate like this? Not all but quite a lot - VAT is a regressive tax but income tax is progressive.

Again, how many loans can you stop repaying if you earn too little? And you can stop with basically no consequences, no mark on your credit file, and the ability to still get credit? I can't think of any to be honest.

All of this is why I agree with Martin Lewis that British student loans act more like a progressive graduate tax than a student loan.

The current repayment threshold is 9% of the amounts over £27k (and change).
£30k gross income --> £270 payment (per year)
£35k --> £720
£40k --> £1,170

Is it better being debt-free? Yes, sure, no brownie points for guessing that.
If a 17-year old has £100k in the bank, sure, don't take the loan, you'll be better off using that cash. But, come on, how many have that much saved upfront for them?

But for the vast majority of students who don't have an alternative, taking out a student loan isn't that bad

Martin Lewis even has a calculator on his website.
www.moneysavingexpert.com/students/student-finance-calculator/
Obviously it all depends on the assumptions on inflation and salary growth, but, just to give an idea, if you start on a £30k salary you'll repay £42k over 30 years - which is actually not too bad:
£28k salary --> £30k repaid
£30k --> £42k
£35k --> £73k
£40k --> 67k
£45k --> £61k

Obviously someone who earns a lot repay it quicker, so ends up paying less interest, but this doesn't detract from the general principle of repayment based on your income.

Obviously someone who earns a lot repay it quicker, so ends up paying less interest, but this doesn't detract from the general principle of repayment based on your income.

I thought you had to continue paying for 30years, with no "paying it off early"?
Isn't that how the system is funded, by the higher earners paying back many times what they borrowed to counterbalance those on low incomes post-graduation who don't repay what they've borrowed?

If she’s 11 the likelihood is that the system will be very different when she comes to apply. So my advice would be keep saving and worry about it when she gets to Y12! Working it out on the current system is, in the nicest possible way, a waste of time

"I thought you had to continue paying for 30years, with no "paying it off early"?"

Absolutely and categorically no! Where did you hear that? Who told you that? No wonder the Financial Times is launching an initiative to promote financial literacy - how many people are simply totally clueless about all this stuff is shocking. Not having a go at you, simply despairing at the state of financial (il)literacy in the country...

The system requires a minimum payment of x% above a certain income threshold. it does not dictate what the maximum payment shall be. You can repay all the student loan in one go if you can afford it!

"
Isn't that how the system is funded, by the higher earners paying back many times what they borrowed to counterbalance those on low incomes post-graduation who don't repay what they've borrowed?"

It's more complex than that. Someone on a very, very high income will repay their loan quickly. Someone on an average income might not repay their loan in full, but might still end up paying more, in total amount, simply because the payments drag on forever.

Let me make a simple example to illustrate - you can verify with any app or website calculating loans and mortgages:

Let's say you borrow £10k at 3% for 3 years. You end up repaying £10,500

Let's say you borrow £10k at 3% for 20 years. You end up repaying £13,310

The interest in % is the same, but in absolute, pound amounts paying over a longer period means you pay more interest.

In a way, the system is funded not so much by those on incredibly high salaries who repay the loan quickly, but more by those on average salaries who repay for a very long period of time

We are saving to help out with university for our DC. I don’t want them to start their adult lives straight out of the gate with debt hanging over their heads if we can help it. We expect to be able to cashflow at least some of the expenses, so the savings will cover what’s left over.

In terms of how we save, we have designated DH’s ISA allowance to save for all of our children in one pot as we prefer to be able to have control over the money. That way, they don’t feel entitled to the money as theirs if, for example, we have one child who ends up needing more financial help than another. It also frees us up to dole it out in a ‘just in time’ fashion (like if we want to help with house deposits) whereas the temptation to fritter it away or just blow it all on something silly might be overwhelming if it was all theirs at 18.

I've been saving into a S&S JISA (converted from CTF) since birth. Aiming to cover living expenses at uni and DD can pick up the tuition fees via loan.

But ultimately it'll be hers and she can choose if to blow it, use it for uni, or save it for something else.