Should we pay off DC's student loans?

[Woollyguru]

I'm having a really hard time trying to work out whether it's worth doing.

DD is graduating this year. She's on plan 2 where the threshold to repay starts at £27k approx, and it will be written off after 30 years. She's got the full tuition fee loan and the min maintenance. So total loan approx £42k

She has a job starting in September which pays £25k in year one rising to £36k in year 2.

She needs to do further training but after that's completed she can reasonably expect to earn min £50kpa which will go up with experience.

I know the repayments will be taken into account when applying for a mortgage.

It's impossible to know her career trajectory and how much she might end up paying back before it's written off. I know in general if you are going to be a high earner and likely to pay it off it's better to pay it off sooner and save on interest.

But the money might be better off going to towards a house deposit.

Has anyone done the maths on this?

@Growlybear83 If she only earnt £25,000 a year, paying it off would be a poor use of the money though.

I don’t know how much she was earning at the time, but she was concerned that the interest was piling up. I thought it was a very good use of my money to stop her worrying.

@Growlybear83 It makes no odds what the interest is if you don’t earn much! Worrying over £0 is obviously rather silly. Everyone needs to do the sums.

She was earning just over the threshold to start making repayments in the country she was living in at the time, and the interest was accruing.

@Growlybear83 Interest makes no difference whatsoever though. All payments are based on what dc earn. The interest is on paper but if you keep earning at a low level, you pay the “tax” at a low level and if dc work part time in the future, they might pay nothing!

So the sums needed careful evaluation because I don’t think they remotely understood how it works.

There are times when paying it off should be better, but everyone should look at earnings trajectories, careers and what else the money could be used for. If dc are paying £35 a month, saving that small sum by paying off the loan is not going to make much difference to anything. Spending £50,000 to pay off the loan, which denies dc a house deposit if it’s the only £50,000 available is not sensible. (If it’s £50,000 out of £1 million, completely different!) A low earning dc still won’t be earning enough to save £50,000 towards a house because they just aren’t earning much. It’s something that needs evaluation and not a knee jerk payment.

Norma's DS is hardly typical of the average high-earner in their twenties. To pay off the loan after graduating a few years is something hardly anyone at that stage win their lives can do - I'm sure most could with a take home of £4.2k per month and low essential outgoings. Earning £80k and trying to pay off £50k student loans is totally different if you're also paying a ton of money on rent/mortgage and childcare.

.

I don’t think I’m being unfair. The clause in the student loan agreement has always allowed the government to change anything it wants at any time for graduates. Martin Lewis always deflected any questions about this saying no government would do it. Well they have and yet he still pushed student loans for over a decade.

@IrishSelkieYou do understand how the loans work though - don’t you ? How else are most dc going to be funded for university fees and maintenance? We wanted vast numbers to go, so of course the user needs to pay. Martin Lewis has always been clear that for people not earning vast amounts, the loan is good value because it’s based on salary. I agree changing the interest rates is yet another Reeves tax but they are running scared of the vast loans outstanding WE need to pay for. No growth and it’s a big problem. Student loans have been outstanding value enabling a very high % to go to university. If we didn’t aspire to that, we would never have needed loans. Given repayments are based on salary, some payments are very low and how are dc going to earn well without the necessary degree and loan to get it?

I understand how your loans work and I also understand they were never good or outstanding value for anyone once the tuition costs were tripled. As for how else to do the funding? Look to pre student loans environment in England and how EU nations fund universities or even look at how RUK outside England does it for a better deal for students,

Not all degrees are great outside the uk and often teaching classes are huge. Students go to home universities and have no choice. They are also enormous. We historically have had choice. My DD went to the university of Bologna. There’s few student blocks. She rented privately but many undergrads are local. They commute. We haven’t got this model. And, you might ask, where is Bologna, the oldest university in Europe, in the world tables? Sunk without trace. We have much better universities overall. We wanted huge % to go to university but we have an expensive model and parents don’t save. They prefer family holidays to Florida. Maybe we should cut back and fund universities more generously? After all, they went over £12,000 a year. We cannot tax everyone to provide this.

If you can afford it surely it’s better to pay for your DC upfront and avoid having to take the loans out in the first place and then have a debate about whether to pay them off or gift a house deposit.

we are paying private school fees anyway at £30k per year per child. If I can still afford that in a few years’ time I may as well fund them through university. The interest rates seem ridiculous and loan would be paid many times over before being cleared if they’re high earners.

We wanted huge % to go to university but we have an expensive model and parents don’t save. They prefer family holidays to Florida.

I know several families in England had saved enough or were on track to have saved enough when it was £3k/yr for their children and maintenance grants existed. They were blindsided by the tripling of fees overnight to £9k/yr in 2012 along with the abolishment of maintenance grants.

Their children were all secondary age, a few even in sixth form. How is a couple on an average income who diligently saved towards a £9k goal post going to be able to save an additional £30-40k in 1 to 5 years?

When I was at uni quite a few people whose parents were paying their tuition fees and maintenance took the student loans behind their parents' backs for extra beer money. I'm sure all their parents thought their child would never do that.

So personally I would rather my child took out the loan and then I repaid it to eliminate that risk.

Edited: sorry replied to wrong post. Meant to reply to @Mumofteentwins

@IrishSelkie That was in 2012? What’s the excuse since then? I know some will always struggle but this has been in the news for decades!

@Mumofteentwins That’s great if you don’t need the money or can replace it. Unlimited money - pay upfront. Quite a few use inheritance money and then it’s gone. Or simply it’s a case of either/or.

Low earnings for grads (see Sunday Times!) mean dc cannot replace it if the only £60,000 available. Then it’s very questionable whether it’s a good use of the money.

I can’t bear debt and I’d hate for my kids to be lumbered with a debt round their neck if I could pay it off.

I have a plan 2 loan. I left with £47k debt. I have been paying it back for 8 years. I now have £68k debt. I’ve paid around £10k in…

I will pay back the total I owe several times over. But I will have a large outstanding balance when it’s written off. But I don’t feel the repayments particularly because I have always just seen it go out before I get my wage and so don’t count it as part of my salary

No, absolutely not. Ridiculous idea.

Imagine how much money the loan company / companies is / are making. For doing fck all. The tax payer pays for the students whilst the loan companies make the obscene profit, for ever.

Total scam and I’m surprised how many people seem to think it’s ok (not directed at you @LadyCrustybread ), just an observation.

If you are reasonably sure that DC will pay it off eventually, then the best way to help is to pay the interest just until the DC's earnings reach the level where their 9% contribution exceeds the interest being added every year. The reason it takes so long to pay off is because compound interest makes the loan get bigger not smaller in the early part of most graduates' careers. If you can afford to convert it into an "interest free" (temporarily) loan in this way, that's a huge part of the burden removed.

If I can pay it off it I will as affects affordability for mortgage.

The payments are structured in such a way as to not keep up with the compounding interest

Yes it gets written off but that is after 30 years of payments that are well above the capital borrowed and interest added. I don’t know why people focus on ‘it gets written off’ not so bad if you never earn that much above the threshold.

The use of the term ‘graduate tax’ just seem to normalise this significant financial burden. These 17/18 year olds had no understanding of how this will impact them.

Its a scandal

Remember that no matter how much you pay off
your child still faces the 9% deduction

No

I was wondering about this.

We don't pay fees as all ours at state but I was wondering about saving now towards it to save them getting the loans in the first place. Apparently the interest accrues from day 1 so by year 3 your year 1 loan amount is bigger already....

How does it work if you don't use loans? Do you pay before they start or in installments?