University fees/costs - use student loans or not?
Discussion
My daughter is off to university this year.
In total she is eligible for approximately 47k in loans over her 3 year course (uni fees and maintenance).
If she takes the loans, we will put the equivalent in isas for her).
Anyone else here with a child going to university?
The question is, does she go the loans route or pay up front?
Interest is charged from day 1 at rpi (currently capped at 6%).
Any loans written off after 40 years of graduating.
Only have to pay of 9% of gross salary exceeding a threshold, currently 27k.
So if she earns 40k, she would be 13k over threshold.
9% of 13k is 1080.
So repayment would be 90 p/m.
Now, she is studying english literature and may never get anywhere near 40k a year.
She may end up as a teacher. Who knows.
In which case, great for loans.
But over 40 years those loans could well be 200-300k with compound interest dependign on interest rates.
We have had very low interest rates for years, but that has now changed.
What are the current thoughts on student loans v paying up front? these days?
Thanks.
In total she is eligible for approximately 47k in loans over her 3 year course (uni fees and maintenance).
If she takes the loans, we will put the equivalent in isas for her).
Anyone else here with a child going to university?
The question is, does she go the loans route or pay up front?
Interest is charged from day 1 at rpi (currently capped at 6%).
Any loans written off after 40 years of graduating.
Only have to pay of 9% of gross salary exceeding a threshold, currently 27k.
So if she earns 40k, she would be 13k over threshold.
9% of 13k is 1080.
So repayment would be 90 p/m.
Now, she is studying english literature and may never get anywhere near 40k a year.
She may end up as a teacher. Who knows.
In which case, great for loans.
But over 40 years those loans could well be 200-300k with compound interest dependign on interest rates.
We have had very low interest rates for years, but that has now changed.
What are the current thoughts on student loans v paying up front? these days?
Thanks.
BoRED S2upid said:
IMO I wouldn’t put it past a future gov to realise they are going to write off 90% of the loans and change the goal posts.
You could always decide once she graduates. Nothing stopping you paying them all off straight away.
I thought about that yes.You could always decide once she graduates. Nothing stopping you paying them all off straight away.
An isa paying around 4% isn't too far away from the rpi cap of around 6%.
So not much of a cost to wait.
See what career she wants after graduating, then pay off or not.
Mr Overheads said:
This is the best guide
https://www.moneysavingexpert.com/students/student...
Since that was written interest rates arre much higher and the loans are writte off after 40 years, and not 30 years.https://www.moneysavingexpert.com/students/student...
The loan terms are dependent on when you take them.
3 years could be 3 sets of loans , all on different terms.
philv said:
I am concerned about how mortgage lenders will look at the loans, even if she does not have to make payments.
Also, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
Didn't seem to affect my lad getting a bloody huge mortgage at all, both him and his girlfriend have student loans.Also, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
I'd use the student loan, it does seem to be a very cheap way of borrowing money.
philv said:
I am concerned about how mortgage lenders will look at the loans, even if she does not have to make payments.
Also, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
No payments = No impact on mortgage lendingAlso, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
OP
We funded living costs for both of mine meaning they both left with c.£30k loans.
The first is unlikely to be a high earner, and is likely to take considerable time off work when children appear. We decided there is no point them or us paying off the loan early as it’s likely a big chunk will be written off.
The second is on track to be a high earner and is unlikely to take much time off if/when children appear. We considered paying the loan off when they graduated and discussed it with them. We decided together that financially it would be better for them to pay off the loan more quickly than is expected and leave the £30k lump sum available with us should they need it in the future for a deposit or similar. Obviously the same applies to the first one too.
We funded living costs for both of mine meaning they both left with c.£30k loans.
The first is unlikely to be a high earner, and is likely to take considerable time off work when children appear. We decided there is no point them or us paying off the loan early as it’s likely a big chunk will be written off.
The second is on track to be a high earner and is unlikely to take much time off if/when children appear. We considered paying the loan off when they graduated and discussed it with them. We decided together that financially it would be better for them to pay off the loan more quickly than is expected and leave the £30k lump sum available with us should they need it in the future for a deposit or similar. Obviously the same applies to the first one too.
philv said:
I am concerned about how mortgage lenders will look at the loans, even if she does not have to make payments.
Also, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
No mortgage lenders don’t take a huge student loan into consideration no graduate would ever get a mortgage if they did. Also, if she ever does get over the repayment threshold, it could well be that she would be making payments for 40 years.
Your isa could well become a decent sized deposit for a first property.
Mogul said:
If fund *your* ISA, the the funds remain within your direct control.
If you fund their ISA(s), these are technically irrevocable gifts (from you to them), and the money becomes theirs to do with as they see fit!
We have both in place. Some in their ISA and other inheritance we haven’t passed on yet. They understand and agree that their ISA’s are designated as a deposit on a house unless we all agree otherwise. If you fund their ISA(s), these are technically irrevocable gifts (from you to them), and the money becomes theirs to do with as they see fit!
However, I am concerned about them placing a large deposit on a house with a partner who doesn’t do similar. If it’s their money, then there is no protection if they split up. But if we loan a deposit to our child, then in the case of a split (with the right paperwork) the deposit is protected as it remains my money.
Phil. said:
Mogul said:
If fund *your* ISA, the the funds remain within your direct control.
If you fund their ISA(s), these are technically irrevocable gifts (from you to them), and the money becomes theirs to do with as they see fit!
We have both in place. Some in their ISA and other inheritance we haven’t passed on yet. They understand and agree that their ISA’s are designated as a deposit on a house unless we all agree otherwise. If you fund their ISA(s), these are technically irrevocable gifts (from you to them), and the money becomes theirs to do with as they see fit!
However, I am concerned about them placing a large deposit on a house with a partner who doesn’t do similar. If it’s their money, then there is no protection if they split up. But if we loan a deposit to our child, then in the case of a split (with the right paperwork) the deposit is protected as it remains my money.
Been there, made that mistake myself.
philv said:
But over 40 years those loans could well be 200-300k with compound interest dependign on interest rates.
We have had very low interest rates for years, but that has now changed.
What are the current thoughts on student loans v paying up front? these days?
Forget the loan amount it's irrelevant except for the edge cases of very high earners.We have had very low interest rates for years, but that has now changed.
What are the current thoughts on student loans v paying up front? these days?
Martin Lewis described it as a 'graduate tax' which is a much better way of thinking of it. He has some YouTube videos which describe the whole thing really.
My son is starting later this year and even with the maintenance grant we'll still need to give him a fair whack if he's not to live on the streets.
philv said:
Mr Overheads said:
This is the best guide
https://www.moneysavingexpert.com/students/student...
Since that was written interest rates arre much higher and the loans are writte off after 40 years, and not 30 years.https://www.moneysavingexpert.com/students/student...
The loan terms are dependent on when you take them.
3 years could be 3 sets of loans , all on different terms.
Needless to say I didn't. That said my daughter now 'owes' the Govt £75k on graduation. It will never get paid off 
Don't forget to add on the accommodation costs you will be paying in additon to any ISA arrangements etc. I've easily paid over £30k out of my own pocket.
ZedLeg said:
I'm sure that the government is looking at student loans in the US and seeing money bags. I wouldn't be surprised if they end up being albatrosses round the necks of graduates in the future.
USA student loans are substantial but provide for very different things compared to UK. My nephew is based in USA and paying for his son at Mississippi University. $40,000 for the first year! However, it includes a lot more than in the UK eg it includes all food, sports etc. Nephew has told son that if his results are not good at the end of year 1 he will no longer pay fees.R.
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