Should DC take the student loan if fees are gifted?

[Citygirlrurallife]

We might be in the very fortunate position to have a relative gift the cost of university fees for D.C. in the event this possibly happens, my feeling is great they don’t get the loan for that (we’d still need loan to help pay for accommodation) that’s a huge chunk of debt they don’t have. DH is of the opinion that DC still take the loan as the interest rates are low and then either invest it so it makes more money than the interest as they pay it back and then use it towards a deposit on a home as the interest rate is lower than what a mortgage would be

I just think not having the debt at all is a better idea - thoughts?

all hypothetical at the moment and a few years off.

Oh you know what I've done, I've automatically changed the salary increase per year from 5 to 2% - on autopilot because I have been doing pensions calculations and a 2% annual pay rise is realistic in the industries me and my partner work in.
Interesting that a plan 5 loan would be paid off in 15 years on a 45k salary with 5% pay rises each year. I'm on a plan 2 loan with a similar salary (lower pay rises each year) and my loan will be written off before it's paid off.

I know lots of people are saying “invest the money - great idea”

but I wonder how many of them have a teenager 🫣

even with good intentions and lots of sound advice, there will be plenty of kids that will blow this money, or justify buying something like a car with it . It’s something to consider.

It needn’t even be blowing the money, it might just be affording to live somewhere that feels safer.

As some others have said, you can't just take the tuition fees loan and do anything with it. It is paid directly to the institution, not to the students.

Enquire of Student Finance England whether you can forgo the tuition fees loan because you have the means to pay the tuition fees by other means. Ensure that those means are totally reliable.

There must be some students whose families pay the fees themselves so it may be possible.

Fees loans go direct to uni you cannot get them paid to the student .

Are they going to be a high earner eg law medicine finance?

Or arts charity ? May pay very little back

Is there ££ for a house deposit in 8 to 10 years time as well?

It s a long time "tax" but not the same as a?regular debt

No. It’s annoying as fuck to pay back because the interest is so high. I left uni with £47k of debt. It’s been 9 years and I paid for 8 of them… around £11k I paid. I now owe £53k 🙃

The interest on my loan is around 7.3%. This starts the day you begin university. Would he get 7.3%+ back in interest on the money?

Loans for fees go straight to the uni but gifts from relatives for fees don’t. So whilst the source of the actual funds may be the relative’s donation rather than the loan, we are still talking about a lump sum being generated by taking a student loan.

Of course it’s possible To forgo the tuition loans. You can take some, none or all of the tuition loans. If you don’t want them you can pay the uni yearly or monthly (I pay monthly). I still apply and am awarded the tuition loans of £0 because I have to show I’m eligible for the loan to receive certain grants which I use instead of the loan to pay.

Thanks so much for all the considered responses. At the moment it’s just a bare bones hypothetical discussion between DH and I and the benefit of posting here without knowing a huge amount are all the links and calculators you’ve all posted, which is appreciated and will help now to build a proper picture.

well def be discussing with the relative what they mean and how they want the money to be spent but if it is just the offer of paying the fees then that makes it all much easier if it gets paid direct to the university so we couldn’t get the loan to do something else anyway.

we’re at least a year away so it’s not a huge rush but something we need to start looking into as we’d just assumed we’d be taking every loan going. Eldest D.C. is actually hoping to get onto an apprenticeship degree so I don’t know what happens with the offer if that happens (though they’re looking at traditional undergraduate degrees too) youngest D.C. doesn’t even know if they want to go to uni so might be mute anyway. Relative is I think keen to make sure they don’t have financial considerations as a barrier to further education should they wish it, but we haven’t had an in depth discussion yet.

We plan to pay for everything - at least for year 1. I didn’t realise we had to do anything other than pay the bill/s when they arrive?! DS starts in September.

Thanks. Should have read this before the other post!

The loans are not the “low interest step up in life” that they once were. Check out the details very carefully - you need to see what interest rates are like at the time, compare with investment returns etc.

This. Be very very careful.

I wonder if a factor in why the interest rates on student loans were put up is that it was quite common for well off young people to take them despite having parents willing to fund university (maintenance and tuition) and use the money as a state subsidised house deposit.

DH and a load of his friends did this because it wasn't considered "debt" when applying for a mortgage, and they were in very high paid city jobs so paid it off relatively quickly.

Don't take the loan!!! They are horrible!!!

I'm no expert at all, but my brother who was on an amazing salary straight out of uni (investment bank) absolutely HATED having the student loan tax, even though he earned really well and paid off the loan fairly quickly in under 10 years. He constantly complained about the huge deductions and was really saddled with it and that's someone who took out a loan some years ago (so still on a "good" plan) and someone who earned really well. If you can avoid saddling your child with this debt, don't do it!

Not quite the same situation, but when DH was at uni, he benefitted from dividends from the family company.

those dividends covered his fees and rent, so he invested his loan, and then repaid it early once he finished uni.

presumably the gift is to prevent your child from accumulating debt early in life, so as long as investing the loan is done properly, I personally don’t see the problem

When Interest rates were ~1% investing the money instead made sense.

At the current rates of ~7.3%, you are unlikely to be able to achieve the same.

What was the interest amount on his loan though, as that’s the key factor in whether or not this plan works.

Good grief no, I think if I was finding the funds to cover this for a grandchild it would be expressly to stop them spending their life weighed down by debt.

Years ago people used to take the loan and save it but I wouldn't do that now as it's not a good deal

I hate to say it but your brother sounds like an entitled twat - he took out a loan and hated paying it back despite earning a high salary. Does he complain about mortgage payments too?

This. The world has moved on.

Don’t do that. I was supposed to invest my student loan. I invested it brilliantly in the Union bar. Took me a decade to pay it off without admitting to my parents!!

We're in the very lucky situation that a Trust was set up by my Aunt to cover DS's student education fees. On top of that he's lived at home (we have facilitated socilising) so he's going to be starting work (hopefully, if he can get a job) with no loans. As he is doing architecture, we're particularly thankful that all the fees will be covered!!!

That only works if the interest on the loan was less than the return from investment. When was your DH at uni?

Wow - that’s really rude and uncalled for.