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?

My son has to pay £6k a year off his student loans and as far as I know it's still increasing! Or it was last year. However, he is saving for a house deposit before worrying about loan, because rent is extortionate and there is no point putting life on hold.

Was that at me ?

The loan deduction is salary related, not balance related.
If there is a loan balance, the deduction is 9% of salary above the limit.
regardless of extra payments by parents

No don’t pay off the student loan

There are online calculators you can look up. I think Martin’s money saving website has one. It’ll let you work out if it’s worth paying off or not

I saw Martin Lewis answering this question, expect it will be on YouTube somewhere.

From what I can remember he advised house deposit.

@herbalteabag I’ve looked at a repayment that large on the calculator. £6000 a year is paid on plan 2 on £8000 a month salary. That’s £96,000 a year - I’m sure we are all crying about that - paid off in 15 years too! What’s not to like? The degree was clearly worth it!

Oh, I've never tried one of those calculators and didn't know that, but yes that is more or less his salary. Yes, the degree was definitely worth it! I had no idea it would be paid of in that amount of time - he's not been on that salary long and before that he was moaning a lot about how long it would take and the interest etc. He rents in London and wants to buy something in London so he needs to save a lot!

I know this probably doesn't sound helpful but it really does depend how much money you have. If you presume that your DC (2 of them?) will need approx 10k per year for 3 years for fees and 10k per year for accommodation, food etc so in total that's 60k per DC. Now it may be that you can save 120k for both of them do go through uni debt free but if that's all you can save (and for many that's out of reach), then when they start saving for a deposit on their 30k salary you won't be able to help them as all your savings are gone.

The alternative is your DC take all the loans, 10k per year for fees and then take the 5k loan to live on each year (this is the minimum available depending on household income) then each DC 45k in debt + you'll need to contribute at least another 5k per year to support them with rent, food etc. You save 60k per child as planned and give them 15k to help them through university and when they finish and start a 30k a year job they start repaying the loan at less than £40 a month but you can gift them 45k for a house deposit

There are a lot of variables. Each family has to do what's best for them. For many though it's just take the huge loan and know it's going to be a millstone for decades

The sums involved are just massive!

Do you have to pay fees as a lump sum? Am wondering what we can manage to pay per month iyswim.

We have 3 dc so this all seems unmanageable.

Re house deposits I have always thought we may be able to downsize and gift a deposit to each of them from freeing equity at the right time.

Need to pay off the mortgage at the same time as saving for uni fees though!

Not sure how this is all going to work for future generations though as DH and I have no loans to pay off. Our DC will be looking at still paying theirs at the same time as they should be saving for their dc, at the same time as they will only just be getting on the housing ladder....

We are fairly well paid, both work ft but have a big mortgage and even without our own student loans to pay off we may not be able to make significant contributions to our own dc. The whole thing feels increasingly unsustainable.

This^^
if any of you took out a mortgage or a car loan would you expect the balance to increase when you have started payments? Likewise with credit card - there would be an outcry hence the tightening of payday loans and advice not to borrow from loan sharks

9% of over threshold…doesn’t seem much in some cases but people need to get their heads around how compound interest works and the impact of paying a loan that never reduces the balance- it’s not ok to minimise it as a graduate tax or say it’s ok it’s paid off - so is my mortgage in 25/30 but I will has an asset worthy of it

I'd wait and see if she manages to get/remain employed, and how much she earns. It's good for her to see the payments go out and really understand what it is to have a loan and have to pay it. Young adults post-uni should not need their parents to step in - they can and should stand alone where they can if you're not to infantilise them.

But if her payments just result in an ever growing debt, as is reported a lot these days, and if I could afford it, I'd pay it off after a few years.

@iamtryingtobecivil. Did you look at the salary he must earn to pay this???? £96,000!!!! What is going to stop him getting anything? The money is paid because of his salary!!!! Not the balance. Plus he’ll be rid of it very quickly and could pay it off himself as he earns so much.

I'm wondering this too. DS18 insisted on taking out a student loan rather than us help with the fees (obviously we'll pay his accommodation and food etc). Not because of the house deposit as he has that already. Apparently all his friends are doing it the same way but I hate the thought of him starting out with a huge debt.

But by that time you could already have racked up thousands in unnecessary interest. It accrues from day 1 so a loan for first year could already be mounting up interest before they even reach final year!

@DiscoBeat What do you mean by “help with fees”? Pay them all? Pay part of them? What about maintenance? Who’s paying for that? Any loan is paid at the rate dictated by his salary. Doesn’t make any difference in terms of size of loan. So be careful you know what you are suggesting and what that means for him.

Very roughly it's 10k per year for fees and a full maintenance loan to live off is 10k. If you're both well paid your DC are likely vto only be eligible for a maintenance loan of approx 5k. Student accommodation is around 7-9k so you're expected to give your DC 5k per year just to give them a very basic standard of living and cover the rent.

The sums involved ARE huge but if you don't have loads and loads of spare money then it's probably best to let your DC take the loan and help them with a deposit. The repayments are a percentage of their earnings not a percentage of the debt so even if you paid for the fees, they would still need to take out a maintenance loan (and you'd need to find 5k per year to top it up) and if they then come out on a low paid job they will still end up making the exact same repayments for 40 years that they would have made if they had taken the loan for fees as well. The difference being that you would have less money to help them or your grandchildren

The whole thing is awful. I totally understand that at this point our DC needs to pay for education but the debt shouldn't snowball into something that lasts 4 decades having been paid off many times over

I just don't agree with the idea its a graduation tax, it's essentially a scandal that everyonevus being lured in to believing its normal. If you can help pay it then if pay it every time.

House deposits and cars before student loans. If she’s made redundant, maternity etc, she won’t have to pay anything on a monthly basis. The interest is loads but in reality it is graduate tax for most.

have a play on listentotaxman to see how much she’d pay on various incomes. If you have it spare, you’d be better off paying her monthly loan payments in most scenarios - massive earners are different.

The whole thing is a mess. The only way that average working class families can afford to send one ( or more ) children to university is to take out student loans.
Without the loans, social mobility is greatly reduced, and we will go back 100 years where university education was a privilege of the rich.
The only saving grace of the system is that if you are not in employment or are in low paid work, you do not pay - particularly important with the uncertain nature of graduate employment for many at the current time.
Addressing the OP, I think it is probably better to help with a house deposit unless you are very rich and can afford to pay the whole debt off.
At least that way you will enable your DC to get onto the housing ladder and that proportion of their income will hopefully be going into equity that they might get back later rather than lining a landlords pockets.

Of course the amount borrowed makes a difference as it will cost more in terms of the added interest and overall amount paid back - that is just wholly inaccurate

Somewhere down the like a future government might decide to write off all student loans and bring in a different system. If you pay the loan of you would not benefit from any such policy change. Yes, it is unlikely, but it's better, IMO, to put the money into something tangible like a house.

This. Although totally disagree with those who say it is pointless to pay off the loan. Martin Lewis has a lot to answer for. But if it’s a straight choice it should be the house deposit.

But the monthly repayments deducted from the graduate
bear no relation to the balance of the loan

a student with £1,000 outstanding will pay 9% of their wages each month
as will a student with £100,000 outstanding

and if either stops work
they will pay nothing

@Talkinpeace I’m finding this hopeless! Why don’t people understand payments are based on salary?

In April 2022 my plan 2 loan was £45,000

i checked last night and it’s gone up to £55,000. The interest far outweighs what I’m paying on it.