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.

Do they realise that without their degree they (likely) wouldn’t have that job? And presumably they each had a five figure sum in their bank accounts at the point they chose to take the loans?

I managed to put myself through uni working 3 jobs and using savings. I'mm grateful my parents pushed me to do that and not take out the student loans. I'm not sure why everyone is jumping on me. All I said is that if parents have the choice, don't lumber the kids with the student loan as every bonus and pay rise they will see even less of. If people need to take the loans then obviously take them

I paid off my DCs’ student loans when they graduated and I saw that they were getting good jobs. DD had borrowed 46k; a year after graduation the loan had grown to 54k. The interest is scary. DD is now 25 and earns about 45k. She can save up for her own house deposit. She has had a stocks and shares LISA since 18 and has over 50k in it.

When I first graduated I earned 12k as a teacher, 30 years later I earn just over 4 times that. In 30 years time I don’t want my children paying back 9% of 100k whilst still owing thousands. It is the best inheritance I can give my children, allowing them to be loan free.

Have you considered the opportunity cost of using that money elsewhere? Eg investing a lump sum of £50 or £60k for 30 years in global equities? The long term return for global equities is around 7-8% a year. So £60k would be £456k after 30 years.

So after 30 years would the total amount paid in loan payments be greater than this amount?

but that nurse won't repay £77K - assuming she kept repaying at £145 a month (I understand this will go up if her salary goes up, but it'll also go down if she works less than full time or takes any maternity leave) - so say £145 a month for 30 years - that's £52,200. Over 40 years it's £69,600. The headline amount owed only matters if you expect to repay in full before the loan wipes - for many people it will wipe before you finish repaying the capital amount, and therefore they never pay any of the interest.

For ANY loan you will repay more than you borrowed - that's how the banks make money! If you took out a £100K mortgage at 4% over 25 years you will repay £158K in total (plus any fees). Student loans on Plan 5 are much better value - inflation level interest and payments linked to your income and wipe after a set period, and don't affect your credit score.

Student loans on Plan 5 are much better value - inflation level interest and payments linked to your income and wipe after a set period, and don't affect your credit score.

I wouldn’t say much better value. They wipe after 40 years, not 30. That’s a huge amount of time to pay hundreds of pounds every month, assuming you have a job that pays the average or a bit above and work consistently. Some people in their 50s and 60s on the plan 5 loan may have been better off ploughing that money into their pensions instead. And student loans have never affected your credit score, regardless of the plan.

I would not touch student loans with a bargepole. Reasons:

1. the government can change the deal - by freezing thresholds etc, mucking about with whether its written off.
2. its a poor deal for all but the highest earners. Low earners: if you are earning so little loads of gets written off, paying 9% extra "tax" for life for a degree that did not improve your earning capability is a terrible waste of money. Middle earners (nurses, teachers etc): your earnings tend to peak mid 40s, you will spend your twenties and thirties accruing all the interest then will be paying a huge amount when your career peaks, and you'll probably pay it all before anything is written off. High earners would be better off using interest free credit cards to pay it off swiftly after uni.
3. "it doesnt affect your ability to borrow for a mortgage", except it does, when you've got 9% less money a month in the affordability calcs
4. "but its only inflation, you only pay what you borrowed in real terms" - except its RPI, not cpi (rpi is higher) and tell it to the nurses and teachers and civil servants who've had pay rises well under inflation for the last 10 years while watching their debt grow.

Im saving the money for my DC.

I don't disagree with anything you've said.

But have you also considered what else you could do with the money? Eg £50k invested for 40 years (in an ISA) in global equities could realistically return 8%pa which would mean your £50k would grow to over £450k in 40 years.

Thats true but also offset against inflation and what she'll be paying in loan repayments and lower quality of life with less disposable income, they'd be CGT on that too.
Past performance is no guarantee of future returns...

My DD is plan 2, the loan repayments are very harsh and she is NHS, so Govt expect so much more from her but still expect her to pay more and more.

Personally, i'd rather be debt free than some possibility of higher returns in decades to come.

Why would you invest £50k for 40 years?

If you were saving for a house it wouldn’t be for 40 years.

My dc already have house/flat deposit so I have no vested interest in this I just don’t understand the 40 years saving part. Surely comparing 5 years would be better. How long do people save for a house/flat deposit for?

40 years is the length of time you have to repay before the loan is written off. Or 30 years for plan 2. So trying to compare like with like.

Pay off the loan which is about £50k when you graduate or put £50k into ISAs over 30 years. And compare how much you'd pay in total over 30 years vs how much your investment would grow to in 30 years.

People don't seem to understand investing in this country, they think it's gambling. But I've been investing for years and if you know what you're doing you can make compound returns of over 8% pa tax free in an ISA.

I still don't think you’ll pay £50k for 40 years. Surely you’ll pay an increasing amount of the loan each month based on your salary? Assuming you get a better salary each year as you should do. I simply don’t see that you have that much to invest for that long.

My dc already has a deposit for a flat/house so perhaps I’m not thinking about this correctly.

Far more useful to have that cash for a property deposit, unless that is covered elsewhere. No one pays their loan back in full nowadays so it’s a waste of money to pay upfront for uni

I’m sorry I still don’t see why they would instantly have a large amount of money they can tie up for decades.

surely they use the money they have, eg £40k/£50k as a deposit for a house
/flat and then use what they save monthly in a pension or isa? I fail to see how they have tens of thousands instantly to invest for decades.

for example, that have £50k which they use against a flat. They then have £1500 per month to service a mortgage plus any loan. Where is the other £50k for 40 years coming from?

56-79% are expected to pay off their student loan in full, plus years of added interest, depending on the plan. Especially now the term has been extended to 40 years. Mostly males.

The £50k is the money you would use to pay the fees and maintenance instead of taking out a loan.

Instead of spending it on fees, take out the loan and invest the £50k.

Any money for a property deposit is a separate thing. Or you could use the £50k for a deposit if that's all you've got. But if that's the case you should definitely use it for a deposit and absolutely do not pay off the student loan.

We have money set aside for a house deposit but also have additional money which could be used to pay off the loan or invested.

Which country is this?