How to manage grandchildren’s inheritance for university costs and future house deposit

[Magnificentkitteh]

My DM sadly passed away last year. Her estate is split between her 2 children and 4 grandchildren in various shares. My 2 DC have inherited c£65k each which is intended to help with university costs or setting themselves up with a house deposit. The advice online seems to be to invest in stocks and shares ISAs if you'll be leaving it for more than 5 years, which is the case for the younger grandchildren but my oldest is 15 and planning to go to uni at 18. Is this still the best option for her? Even if it is the tax free allowance is £9k per year so presumably most of it would have to go into a different sort of account.

I'm a bit clueless as to when the bills will fall for uni. Would she be better off investing her money and taking a loan for the fees, or paying the fees upfront?

I think uni costs will use up pretty much all of her money but it would be good to be able to help her with a house deposit as well which I can start to save for if I use my share of the inheritance to pay down our mortgage.

We'd obviously want to do the same for our youngest if but there's 4 years between them so her money will have more chance to grow so will need to work out what's fair. In any case by the time our youngest is ready to leave home we could downsize or relocate to release more funds. I guess there's our own old age to think about but we both have public sector pensions which I'm hoping would be enough to live off once the mortgage is paid off. We are currently 20 yearsish away from retirement.

To my mind it would depend on what degree she is studying for. If she’s studying a higher potential income subject like dentistry putting the money towards uni fees would make sense as she is pretty much guaranteed a ft job on leaving uni and it’s a good paying sector. If she’s studying a subject in a lower income sector then saving the money for a house deposit would make more sense.

Thanks. Sorry, I wasn't clear. She'll be going to university regardless (unless she changes her mind) and will probably study something in the Humanities field. Maybe law, maybe history/politics. So could go either way financially. So we will have those expenses to cover one way or another, and have the funds to cover it. Just not sure if we should be covering them up front from her money, or investing her money a different way while making use of loans etc to fund the uni costs (and if so how to invest).

Absolutely don’t use it for uni, give it all for a house deposit. My kids also have had a significant amount from grandparents and I didnt consider using it for uni a house is a far better option

Don’t give it all for uni. Maybe keep some of it available to help with living costs but I’d put the rest in a sticks and shares isa to use for house deposit.

How do you find uni then? Loans etc? Or paying out of income yourselves? Sorry, am a bit clueless as I said. She will be going to uni. She wants to, I want that for her, my mum's money means she has that choice. I really just was asking where to put her money for 3 yearsish to make it stretch as far as possible, or if it's better to fund uni some other way while investing her money. But that other way would likely have to involve loans of some kind.

You need to do some research on student loans before you make a decision. Obviously something could change with them in the future, but let's imagine that nothing changes between now and the time your DD goes to uni. She'll have a plan 5 student loan. The basic terms are interest is charged at RPI which is currently 3.2%. She would start making payments when her income was above £25k. The repayments are 9% of income. The loan is wiped after 40 years.
Read this
https://studentfinancecalculator.co.uk/plans/plan-5

So if you invested the money and it grew at historic average rates of 8%, she would be better off not paying for uni from her inheritance. Do a compound interest calculation on both options with a calculator like www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Also when she goes to uni you don't pay 3 years of fees plus living expenses on day 1. The cost is spread over the years, so your timeframe, if she does fund uni out of her inheritance, needs adjusting. You need somewhere to keep the money for 6 years and in 3 years you need to access approx a third of it spread over the year, the following year another third, the final year the last third

Depending on your household income, she might not get the full student loan. In which case she will need extra money from you, her inheritance, and or her working part time. I have a teen DD too and I'm planning on needing to provide £500 to £800 (depending on her finding part time work/inflation) a month to top up her loan because she'll only get the minimum loan due to our household income.

It’s her money to spend as she wishes - not yours.

What are you talking about? As it happens I hold it in trust for her but I've already said she wants to spend it on uni.We were just looking for advice as to how to invest it in the short term.

Thank you. This is the type of info I was hoping to get from this thread. I probably made it over complicated because it's obviously not quite as straightforward as this pot being the only fund for uni costs and there being nothing else for her later future, but having a vague sense of how uni costs are structured and repaid is helpful information when deciding how long to tie up her money for etc.

No worries!
If I was in your DDs shoes I would ask you to open me a junior s+S ISA on something like fidelity or vanguard. Put the 9k in a year until I was 18 (the rest in the highest interest savings account you can find until it's all invested). Inside the isa wrapper, I'd ask you to invest mostly in a global tracker, and maybe upto 10-15% of it in something more volatile, but with higher potential for growth eg a special situations fund, and/or a gobal smaller companies fund. At 18 and in the subsequent years, I would be putting my full £20k isa allowance into it.

When I went to uni I would take out the full loan I was entitled to and I'd work part-time. When I left I'd have a look at the job market, my earning potential, the actual terms of my student loan, did I want to buy a house at now at 21 years old or in ten years time? At that point I'd expect to have significantly more than £65k because of the growth. And so I'd have more choices. One idea could be to pay off a chunk of my loan, and keep the majority invested for a few more years until I was settled enough in one place to buy a house. Time invested in the market beats most things.
Seriously use the compound interest calculator I linked to, plug in different timescales and see how much that £65k will grow into in 10 or 15 years if you invest it.

Thank you so much! This is a whole new world to me.

Honestly, for that amount of money, I’d speak with a qualified financial advisor, rather than getting advice from random folks on here 🤷🏼‍♀️

Thanks. Yes, I might do that. I thought the answer was a bit more straightforward than it perhaps is.

I'd listen to ItIsGreen.

There are online calculators about repayment rates for student loans. For example, someone earning £35,000 would payback around £75 each month, nothing if earning under £25,000.

If your children used most of their inheritance to fund university, they be better off by, say £75 per month.

Investing the inheritance over the long term would more than compensate for that.

i wouldn’t get student loans anymore. They are not the gold many people think

If I had enough to pay for it myself I should add!!!

£65k is not really financial advisor territory. But you do have 2 kids inheriting and yourself/your DH?

Just keep in mind that financial advisers are out to earn their keep. There will be fees involved. Even an ongoing fee of 1% is considered high. And you can end up paying ongoing fees because that's in their best interests and they are good at bamboozling you and frightening you into thinking you'll make a mistake without them.

Certainly take professional advice if you want to. But before you do, take a month or two to improve your financial literacy. Read books, listen to podcasts about money and investing, do the rebel finance school which is always recommended on here. Make sure that you are in the best place possible to hear the professional advice and come to your own decision

Broadly Uni costs are 25k p.a, 10k fees, 10k accommodation and 5k living expenses. So 75k in total X2

Most won't get loans to fully pay the costs so parental contribution is required. First I would work out what you as parents could afford to contribute. Most people take the student fees so that leaves 15k to pay each year. She could work but it's challenging to find student work these days. She could get the maintenance on but check what she would be entitled to.

You pay fees and accommodation costs yearly, usually a term in advance.

My instinct would be to invest the money for growth if you can afford to subside her accommodation and living costs. If you paid fees you would still be investing 35k minimum.

Thanks yes, I thought it was more a q of cash v stocks and shares isa rather than major investment territory. It was more that my older dd seems to be on the borderline of whether investing in the market is low enough risk, given when she will need to withdraw her money. But that depends a bit on how we finance university. And I didn't realise that the ISA limits are lower for children.

Yes 2 X kids, and dh and I inherited a similar sum but that will probably go on home improvements plus a bit of mortgage payoff. Then dsis is in a similar boat with her kids but they are a fair bit younger.

Proper financial advice is a good idea and there are also previous threads on here.

People debate either way. Our spreadsheets take into account what the money can make in investments and the downsides of paying extra years of rent if you blow it all on uni costs. Also that as a female she is statistically less likely to pay off the student loan in full - because she is more likely to have periods of working PT or having a career break. Obviously this is a sexist assumption and you may make different assumptions.

As you are probably aware, how much maintenance loan they can get depends on parental income. In our view the difference between the maintenance loan DD can get and the max loan is firmly our problem as parents, not hers, so we give her that and make it up to enough to cover her accommodation. The fact she has the inheritance does not, in my view, get us off the hook morally for covering that gap. She should not be spending her potential house deposit on money that she is blocked from borrowing because of our earnings.

So we pay her accommodation cost, approx £6k. She lives off min maintenance loan and takes student loan for fees. Her plan is to buy a property about a couple of years after uni, and probably a car at some point along the way. She also works 5 days a week most hols, so she's pretty flush, but again I don't think that gets us off the hook of covering that gap between min and max loan.

DH (and the spreadsheet) says the loan is not a worry as it only grows at RPI. I get the logic but I'm a bit twitchy about it and I might encourage her to pay off enough that it shrinks rather than grows each year, to avoid it compounding - even though it should only compound in line with inflation. DH tells me this is throwing money away. I get the sums, honest, but I just hate the idea of her debt continuing to grow.

It's a fundamental point that we do not have enough money to cover both uni and a decent house deposit. If you do, I can see the arguement for not taking student loans, but as it is I think the repayment terms favour her taking the loan and keeping the money for a house deposit. If she decides she wants to clear the loans shortly after uni instead then she can. Taking the loan delays the decision for her with minimal downsides, in my view. The decision should be made by future adult DD, not 18 year old DD even with our support, and taking the loan gives her that chance to delay the decision.

You don’t need an adviser for this.

Lots of info online. I would suggest reading up on student loans and costs - she needs to think about this in the round, what other sources of funds she might have, what’s a realistic amount for a deposit on a flat etc.

My instinct would be to split the money. £30k in short dated low coupon gilts to provide funds at uni- maybe she takes a loan for the tuition fees and the inheritance funds living costs. Then £35k into shares (gradually moving into an ISA) - over 6 years that might grow to (real terms) £50k, which could be a deposit.

Thank you. This sounds like you're in a similar boat in some ways. I don't have enough to pay for both uni and house deposit right now because pretty much all my money is tied up in my London house which is still subject to a mortgage, but I was already due to pay the bulk of that off in the next few years and then start funneling those monthly payments towards university costs, and potentially downsize at some point when DDs are properly ready to fly the nest. I can now accelerate that and start paying the mortgage money into a savings/investment account of my own, which will be there to help with both dds' futures, as well as our own financial security.

Obviously you'll appreciate that it's been a bit of a shit year and although this thread is focussed on the financial aspects of inheritance, it's a bit emotional as well.

Thank you. This sounds like the potential start of a plan.

I wouldn’t use it for uni. There are so many stories from graduates saying that they can’t get a mortgage as they have a student loan, so I’d keep the money for a house deposit. The student loan can be paid back or not, over many years.

To be brutally honest, I wouldn’t encourage anyone to go and do a degree now unless it’s absolutely necessary for their career. It’s far too much of a financial risk.

You didn’t say you held it in trust though. What do the terms of the trust say?
My point still stands though, once they turn 18 they will have full control of their money so I’d be focusing on where to put it to enable it to grow as much as possible. You’d need to consider tax implications too.