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?

No, that was on the insurance linked to it.
The fact that the endowment payout was well short of the mortgage was never compensated for
(I know, I had two)

@Talkinpeace Im probably older than you and our endowment mortgage did pay off the mortgage and provided a big lump sum too. However no financial product is foolproof. They all need some investigation and understanding of how they operate. However no lender tolerates the loan not being paid back. Except the student loan company.

The pay off, in terms of 40 years repayment, is vast numbers going to university. The money pays the universities and, unfortunately, for huge blocks of new student accommodation. Often taking up space where new homes for families could have been built. But we preferred students paying huge rents. All this expansion has to be paid for somehow.

We have less than 50% paying off loans and 40 years should increase that to 75.%. Those who benefit the most pay.

Other option: close universities and wind the clock back. Is 20% enough at university? Maybe we should cut our coat according to our cloth? If dc don’t want to pay, why should all the workers with no degree at all or future workers paying off the vast debt of unpaid loans. Nothing is palatable is it?

Sounds like, because of your anger related to this, you can’t see just how unfair the student loan system is.

We were affected by the endowment mortgage mis-selling which as far as I can recall, and certainly in our case, was caused by mortgage providers telling customers that they were taking out a full endowment policy which would pay off the mortgage in full at the end of the 25 year period, when in fact a huge number of people were sold low cost endowments, which didnt come anywhere near paying off the loan. We started to get seriously concerned about Ten years before the end of our mortgage when the annual statement began to show a significant shortfall. By this time, there were many news stories about people being left with huge shortfalls. Thankfully I still had the initial diagram that our bank manager had drawn on bank headed paper when we discussed our mortgage with him in 1985, which clearly showed that he had discussed a full endowment mortgage, not the low cost endowment that we ended up with. We successfully claimed compensation, and when our mortgsge ended, although we didn’t have the lump sum we had been promised at the time we took it out, it was laid off in full. At the time we moved to our current house, about 15 years into our mortgsge term, we took out a small top up full endowment policy which paid out double the policy value when it matured.

Both of my children have huge loans.
I am well aware of what a poorly designed system it is.

The interest rate is Usury
Charging interest pre graduation is exploitative.
The fact that Universities got to spaff the fee money on huge salaries and overseas campuses
The fact that Universities get to keep the tuition fee when a student drops out mid term from an utterly unsuitable course.
The fact that hall fees for 60 year old unmodernised rooms are seven times what they were when I went.
The fact that Universities are allowed to charge hall rent for 50 weeks a year to students who are at home working all summer

I have long thought that the tuition fee money should be held in escrow and only released to the Universities in full when students
a) graduate
b) start repaying their loans
{on a 70;20:10 ratio}
would get rid of a lot of the rubbish courses

But this all arises out of a political decision not to fund higher education through tax
as countries like Germany and France and Belgium and the Netherlands do.

@Talkinpeace We are fairly highly taxed here but spend it on the NHS. Nowhere else has this. We’ve made that bed, so to speak, and are now paying for it. Ditto benefits. We live above our means and we just want the state to pay for more and more. When parents went to university, 37% didn’t go. Times have changed. We want that number going , they have to pay. The taxpayer seems to prefer the NHS.

I think universities are profligate. I think the hall my dd was in was 100 years old, but, look at all the new ones and many aren’t university owned either.

We clearly have too many universities and too many courses that aren’t producing graduates of high calibre. They have a narrow education and it shows. The massive disappointment when grads cannot get jobs will grow. We have no solutions but sending so many to university is only feathering the nests of the universities. How do we expect these young people to pay income tax and NI to pay for yet more degrees at third rate universities? It’s simply not acceptable.

UK Health spend is less than sane countries like France and Germany and Scandinavia.
the UK is under taxed for its demographic.

Narrow degrees and non targeted courses is an utter red herring.
As I said up thread about Nordic Studies at Oxford.

The UK has very few third rate universities
but needs to re recognise HNDs
which werea brilliant way to do things

My view is it is their choice. I intend to give my (recently graduated) DD and DS a sum of money in the next few years, which they can use for a house deposit, paying off their student loan, or to fund further study. It depends so much on expectations about personal circumstances and future plans, there is no right answer. I dont feel I should make that choice for them. We're waiting a few years until they have a better idea of their plans and/or have reached a stage where they might want to buy, but after that will leave it up to them. Things are particularly uncertain at the moment as there seems to be some political pressure to reduce the student loan burden, so I'd be inclined to wait to see if that goes anywhere.

Errr, no, not if you pay it all off!

Originally I assumed we would pay fees and maintenance so he didn't have to take out a loan at all, but he was adamant he wanted to take out a loan for the fees (we still pay the food and accommodation). This is what most of his friends are doing too. I'm just worried about him starting out with an enormous debt.

@DiscoBeat Why? Millions have it. You do know his payments are linked to his salary? No salary - no payments and no debt in the normal meaning of the word. He won’t ever owe the whole sum. He will pay monthly according to his salary. So if he borrows £30,000 or £60,000, his payments each month are still based on his salary. Earning a high salary clears the loan more quickly so interest is less Have you looked up the monthly repayments? It’s not a bank debt or mortgage debt or even an overdraft.

If you spend £30,000 on fees, as well as maintenance, would you have anything left over for him? Surely that matters? If you have £60,000 and then loads for buying a property, fine, avoid loans. If you don’t, be the same as the majority, let him have the loan. Many parents just don’t have £60,000 lying around then loads for a house deposit too. If he’s a high earner, he can just pay off the loan, DD1 did.

He's lucky in that he does have £80k in savings which hopefully will have grown more in 3 years time when he comes to buy a house, so he's OK for a house deposit. I just feel uncomfortable about a big debt but he isn't all phased by it!

@DiscoBeat He’s not like most students then, he’s rich. I think for the purpose of the thread, he’s not typical and it was parents paying off the loan. My DDs needed more than £80,000 for a deposit. Earnings can limit borrowing so you need a bigger deposit.

Your children are at risk of spending over £15k a year on extra beer money? And that’s why you would not pay their tuition fees or maintenance costs? That seems a bit paranoid.

Yes that was in 2012. These parents would be in my age group. We all had children in Yr7 (age 11) to Yr12 (age 17) when the tuition fees tripled from £3k/yr to £9k/yr and maintenance grants were scrapped and turned into loans.

This mean we didn’t have the time or income to save up for a Uni cost that had more than tripled. We had all been saving since birth for our children.

As for “excuses since then” those that were in Yr7 in 2012 are only 24 now and so are newly graduated. Parents only have 18yrs to save Uni tuition, so by age 9 you need to be halfway to the projected costs (born 2003). No one expected the costs to be more than tripled.

There are still knock on effects on families from 2012’s changes on that age group.

Unless they're going to hit 70k + fairly quickly, its not worth paying the Plan 2 off. So on 50k I wouldn't even consider it, just giving the government free money - and if they take a career break or change jobs could be even worse.

@IrishSelkie That’s not right. My DD had a maintenance loan in 2010. The grants were scrapped way before then. The grants and awards section certainly was gone well before that. I do think most parents were aware of loans way before 2010 and there’s no excuse now.

Maintenance loans were available for students from families with higher incomes which your DD must have been from in 2010.

Maintenance grants were available for students from low income families until they started phasing them out in 2012.

They were completely gone for all students by the 2016/17 school year.
https://commonslibrary.parliament.uk/research-briefings/cbp-7258/

There is no excuse now for parents of todays’ 13yr olds, but the parents of any children born earlier who are now Uni age or recent graduates do have reason to complain about not enough time to save up.

@IrishSelkie It says maintenance loans were introduced in 1990 and that’s about right as I managed a grants and awards section in my LA. DD got minimum maintenance loan in 2010 because dh earned a lot. Yes, they messed around with grants but essentially the loans have been fees and maintenance for a while and only a parent with their head firmly in the sand would not try snd save.

What system would people like?
I don't want my DC to be paying 9% of their salary above £25K for 40 years (Plan 5) but if you think of it as a graduate tax and don't look at the total, it's not awful.

Martin Lewis has been encouraging loans because for many people it's their only chance to go to university.
I think if you can afford to pay off loans or give your child a house deposit, then a house deposit is going to be better for them in terms of later life.
If you can afford to do both, then it's a no brainer.

Martin Lewis' advice was aimed at the first two groups of people.

There are not enough non-university routes into many graduate careers, so for an academic DC, university is still going to be their main route.

I do think we will see more DC commuting to local university (regardless of its status) or doing distance learning in coming years to save maintenance costs. But they will still have to take out loans for tuition fees unless their parents are extremely wealthy.

@redskyAtNigh The big problem is that people want free everything - Corbyn suggested this. They also want 37.% of school leavers going to university. When it was free it was nearer 10-15% depending on era. Unfortunately we want it both ways.

I think ML advice was fair enough. It wax aimed at encouraging poorer people yo go and aim high. Cost didn’t hold them back. We now have very risk averse people not wanting dc to pay. I get that given 40 years and low income threshold. I hope the government makes some changes but with huge loans outstanding, I can see why they acted.

Yes, the threshold is ridiculously low now - it used to be that you had be at least earning a "graduate wage" before repayments kicked in. A simple to implement compromise would be to increase the threshold - that would be fine for Plan 5 students (I don't think many will be paying back yet) but of course would seem unfair for Plan 2 students. No solution that suits everyone.

A fairer salary would be the average graduate starting salary. I think!

The National minimum wage has quadrupled since it was introduced.
that has utterly distorted the job market for young people
graduate or non

All I said was that they did away with maintenance grants post 2012 and replaced them with maintenance loans. This is correct.

I never said that maintenance loans did not exist at all. They did for higher income students who never qualified for maintenance grants. These aren’t the families complaining about trying to save up for Uni costs.

My point that maintenance grants did exist and then were abolished overnight, giving lower income families no time to save and plan for triple the fees plus much higher accomodation costs still stands and is still a valid excuse for those parents.