Student loan or not

[Bellavida99]

My father in law has very generously offered my daughter £54k for uni to enable her to have no student debt. It’s an amazing offer. I read on Martin Lewis that you should get a student loan even if you have savings so are we missing a trick and she should still get a tuition loan at least? To me it seems that coming out of uni with no debt is a no brainer but are we missing something. He lives abroad and is fairly “hands off” so wouldn’t actually know if she got a tuition loan and invested it but I don’t really understand Martin Lewis’s logic here. If it makes any difference it would literally be a one off payment this summer.

everyone’s replies are so useful and generally cover both sides of what we’re thinking. It’s very difficult. And now I’ve heard there’s no tuition fees for her course in Wales too! Thanks everyone I’m not sure we’re much clearer on what we should do but I’m certainly better informed now and we have at least 7 months to consider this all further but now fully armed with info 😊

@Bellavida99 we only found out when dd went to a ucas fair- school didn’t know. She’s now at Swansea. Loves it- and we’re putting the money we had saved for this into her lifetime Isa.

wales is quite affordable and two years doesn’t seem a huge burden- especially since the health board has to entemsure they have a job .

Thanks for the heads up. The 2 year tie in is potentially a massive advantage for graduates as it’s in Welsh NHSs interest to find them a role when they graduate so they get that first newly qualified role under their belt. Maybe we should consider looking at Wales during clearing

I'd say the biggest change with the student loan system is that it needs more thought about university and whether it is right for you. I went to uni in 2006-2010 and there were quite a few people who fell into the "I'm here because I wasn't sure what to do, everyone else was going and I liked this subject at A level so I thought I would do a degree in it". The costs now mean this could be a really expensive mistake.

Finding the right course and the right uni is important. Draw up your short list and then explore what the uni life might look like as well as where that degree might take you.

I was quite keen on doing a pharmacy degree but my chemistry teacher who knew me very well said I would find the course interesting but would probably hate the job. Instead I did a chemistry degree with a strong focus on the chemistry of the drugs and the body. It had a lot of overlap with a pharmacy side but also it was a lot of the core chemistry areas that I used to start my career and found the most fascinating. I then ended up working in drug discovery combining my love of chemistry and what the body does.

I went to a campus based uni in a city very much focused on pubs for socialising. This suited me I'm very much a Cinderella need to be in bed type of person and clubbing has never really appealed. There were people on my course the exact opposite and they spent a fortune on trains to the nearby cities to go to the better clubs. .

Rents vary from place to place too so look into that as well once you have drawn up a shortlist.

If you aren't sure, it's ok to not rush in and to take a year out to weigh up the options. I took a year out between my undergraduate degree and my PhD. I wasn't sure what I wanted and didn't want to commit to another 4 years at uni if it wasn't right for me. My boss on placement said that there aren't many times in life where you get to stop and pause whilst you think about what you are going to do. Before and after uni is one of those times. After one awful experience at a job I decided that I did want to do the PhD and go down a more academic route rather than going into manufacturing roles I had been looking at. I have no regrets and I probably would have chosen the wrong PhD without that year of reflection about what was important to me.

I think one of the issues about student loans is that it very much depends upon what your (dc’s) earning profile will be, over the career-span… - which may be impossible to forecast!

I think the worst case scenario would be a career profile where you start on a low wage, and it stays this way for a long time, and it only increases significantly much later on - so with high interest rates, the amount owed would compound significantly, so student loan repayments could potentially continue for the full 40 years, despite being on a very high salary for the last 10-15. An example of this is academia - where a research post or early career lecturer won’t earn much, but a senior academic would.

In terms of the interest rate not affecting how much you repay - that’s only in monthly terms. I don’t think ML is as clear as this as they should be, tbh. Higher interest rates will mean the amount owed compounds more, so it will take longer to pay off, so you will be paying for longer (at potentially 9% (over threshold) of your peak salary). So the total you pay over the lifespan of the loan will be more, if interest rates are higher.

Because of the way compound interest works and the interest being applied form day 1, you're looking at 7-9% as your true interest rate once you start paying it back (assuming you do) after 4-6 years of starting your course.

And most people will pay the whole thing back as minimum wage now basically takes almost everyone into the category of needing to repay. Martin Lewis has a lot to answer for on this in my view.

What so get nothing of nothing…. they don’t do a maths degree then 🤔

But compound interest also works on savings. Currently you can get 4.4% on the top paying cash ISAs so whilst at the end of a 3 year degree your student loan would have increased by 6.5% (3.2% APR) the money in the bank would have increased by 9% (4.4% annual). Based on £9500 tuition fee money and a £5000 maintenance you would be £1000 up.
Taking the loan rather than paying up front gives you options and you can repay it in full at any point. If you ensure it is always in savings accounts higher than RPI you won't be losing money. If you don't claim and part way through your course realise that actually it would have been better you can't get the loans back dated. If unsure on what is the best solution I'd always go with the option that gives the greatest flexibility.

Don’t get a student loan… mine was £53k when I left uni. 8 years later (and 8 years of paying) and it’s £67k!

https://www.bbc.co.uk/news/articles/ce3k4xdqyp1o

Martin Lewis seems to have changed his tune and is now saying it shouldn’t be treated (by the govt) as a tax, but as a contract.
This is in response to the repayment threshold being frozen for Plan 2.

It’s a lot of money, that compounds extremely fast, while you’re still studying, and the govt can, and have, change the goal posts. Beware.

We are on plan 5 now though aren’t we?

Yes, I just mean his comments in the article are in response to the repayment levels being frozen for Plan 2 in the Budget. Reeves’s justification is partly to bring plans into line with each other. But it’s interesting that ML has always described loans as a sort of graduate tax, but now that the terms are getting harder he is repositioning them as a contract and saying they shouldn’t be treated by the government as a tax. Which is it?

It really depends on their earning potential after university.

>If they will be a lower earner (under 27k) (consider that women often do earn less due to part time work after Mat leave etc) then it’s worth taking the loan because they may never pay it back before it’s wiped.

>>>If they are likely to be a middle earner- This is the group getting heavily smashed. (Approx 27-80k.) They end up paying off far more than they took out, due to interest and making minimal payments each month.

>if they will be a high earner, then they will pay off the loan relatively quickly anyway (9% per year on a £100,000 salary will not take very long to pay off and therefore led interest will have accrued).

You mention NHS course. If your DS is studying medicine then she will probably be a mid-high earner. If she is studying an AHP or nursing course she will likely be a low or middle earner.

@DemonsandMosquitoeshow much did he invest if you don’t mind saying? I know it’ll be difficult for now but I’m trying to save with this in mind and it’s so hard to know what to aim for!

IIRC it was about £25k each in stocks and shares from when they were about nine or ten.

You are spreading so much misinformation here! You are way out of date with your info. Plan 5 is what we are on now. These are the facts:

The interest rate is RPI only. The repayment threshold is 25k. The majority will now repay in full. The loan gets written off after 40 years, not 30.

Last year, some 4m graduates made repayments. But two-thirds of these accrued more in interest than they paid. The total amount repaid was £5bn, but interest charges amounted, incredibly, to £15.2bn

A report I saw said the target of 50% of people going to Uni means the "value" of a degree has declined so graduate salaries are not commanding the premium they previously did. It means that many graduates will be in the middle tier, paying an additional 9% tax, which given other living costs will make life difficult.

I suspect there will be a reversal in Uni uptake which might not be a bad thing, especially if it means the over inflated salaries of the VPs are reduced.

I think people need to decide if they are talking about plan 5 or not. Plan 2 and plan 5 are very different.

I don't understand your post? My post said after friends I know get a bonus, they lose 40% to tax, 10% to national insurance, and then another 10% to student loan, there's not much of the bonus left. They hate it and wish they hadn't of taken the loan

Your options are pay for uni, or keep it as a house deposit.

I think I d go for 2nd option.

This is the problem. There's so many different unknown future variables, it's impossible to know whether it's worth paying it off. If you're going to do it though it's best to do it early on to minimise interest.

My DD is on plan 2 and currently earning £28k so under the threshold but next year will earn around £40k. But she then wants to do further study/training and her income will drop again probably below the threshold.

Overall I'm minded to invest the money in global equities. After 30 years it's likely to be worth more than the total amount paid over 30 years. She might also take time out to have children etc, work part time, all of which means the payments will reduce.

The young person might be in a position to save their own house deposit if they can live at home after graduating for a few years, so another consideration.

Saving the £54k could be achievable in under 5 years with a decent job, which they'd need anyway to get a mortgage, alongside a LISA and sensible approach to saving. Plus easier if their income isn't reduced by student loan repayments.

Chatgpt says around £92k.

You said: They hate getting bonuses or a pay rise.

So don’t have one and get even less…. 🤔