Applying for student loan

amelia60

My son should be starting at university in October. He has started his loan application which needs to be in by May 31. I have read lots of information on this site and understand that these loans are "good"! My problem is that I am debt averse (and fortunate not to need to take loans). My plan has been to get my son to take out loans, put the money to cover them in an account which earns more interest than he pays on the loan and see what happens. But given the high RPI last March (5.3%?) and uncertainty about future interest rates, what would happen if the situation changes drastically so I can't earn more interest than he pays? Is my understanding that I can pay off his loan at any time correct? (i.e. not wait until he graduates/is earning above the threshold). I know it is unlikely that this scenario will arise but I'd just like to make sure I can opt out of the debt thing at any time if necessary. I am still very slightly uneasy about him taking out a loan, even though I understand it is not like a normal loan and he may end up not having to repay it all. Thank you.

Lokolo

There is a clause that the interest rate cannot be over the base rate + 1%. So even with RPI being 5% it won't make a difference until the base rate increases. Currently the rate will be stuck at 1.5% (0.5% base rate + 1%), which can easily be doubled.

I have had my loans for 4 years, I have made a loss in 1 year and gains in 3. But that loss in that one year didn't make me want to pay it back.

But yes you can pay it back whenever you like (well he)

atypical

You can effectively lock in a 2% 'profit' by opening Secure Trust Bank's 183 day notice account. It guarantees to pay 3% above the base rate:
http://www.securetrustbank.com/savings-accounts/183-day-notice-tracker-account

melancholly

well talk to him about money and debt and make sure he knows all about the repayment terms. that info will be priceless as so many students sign the forms without really checking out all the details. it you want to be able to support him, then put some money aside in a lump sum earning interest, then he could use it for a house deposit or something. then he can live off the loans he takes out.

http://www.moneysavingexpert.com/banking/student-money-saving
http://www.moneysavingexpert.com/loans/student-loans-repay

have a read of these articles on the main site. but just remember your son is signing the agreement, not you, and should your circumstances change meaning you can't pay if off for him, it is up to him to repay. he should be very involved in this process.

a lot of the panic about student loans will be for next year; your son will just have managed to get in under much better terms than future students!

amelia60

Thanks for the replies - that savings deal looks interesting. I really just wanted confirmation that repayment would be straightforward if necessary (Thanks Lokolo!). I don't trust the government and in the T&C there is a bit about "The regulations may be replaced by later regulations." However I don't envisage that happening as there would be uproar.

melancholly wrote: »

well talk to him about money and debt and make sure he knows all about the repayment terms. that info will be priceless as so many students sign the forms without really checking out all the details. it you want to be able to support him, then put some money aside in a lump sum earning interest, then he could use it for a house deposit or something.

He is clued up about finance (big fan of the MSE website!) and we have talked about student finance (they've covered it at school too) but tbh he's concentrating on A levels at the moment! I'm glad about that as if he misses the grades this year it'll be a lot more expensive for him. We may choose to cover all his university costs but it's not money put aside for him exclusively. But having benefited from free education ourselves we would like to offer our children the same. After a good education, they'll be on their own! But certainly as he's starting this year I can see the sense of him having the loans plus the money to cover them in a savings account as the rate will be less than a mortgage later in life. As you hint, the situation will not necessarily be so clear for the next student in our family.

melancholly

amelia60 wrote: »

He is clued up about finance (big fan of the MSE website!) and we have talked about student finance (they've covered it at school too)

that's great - on both counts! i wish more schools explained all the details (or maybe they do and lots of students don't listen?! i'd like to hope not!) it's just me being cynical about student understaning after all the posts on here asking questions that they really should have known the answers to before signing the loan agreement (like what is the threshold, do they really charge interest etc etc!!)

hope he does well in his exams.

amelia60

melancholly wrote: »

hope he does well in his exams.

Thanks - not long to go now.