'Don't pay your kids tuition fees upfront' Discussion Area

setmefree2

Early loan repayments a 'gift to the government'

Students who repay their tuition fees early may simply be making an unnecessary "gift to the government", an economist has warned.

Plans to levy hefty charges on graduates who pay off their university loans early were scrapped last week, reportedly to placate Conservative MPs, in a deal that allowed Vince Cable, the business secretary, to appoint Les Ebdon as the new director of the Office for Fair Access.
The early redemption penalties were designed to stop students buying themselves out of interest charges over their 30-year repayment plans, but they were denounced by some as an unfair penalty on middle-class families.
However, Tim Leunig, chief economist at the liberal thinktank CentreForum, said graduates should think twice about paying off their debts early because most will never repay the full amount within 30 years, after which time arrears are written off.
He said a graduate earning £30,000 a year, in perpetuity, who paid off 10 per cent of a £38,250 loan early would not reduce their repayments at all.
"Every penny of their early repayment is a gift to the government," said Dr Leunig, lecturer in economic history at the London School of Economics.
Dr Leunig said in a report published in September: "Given that the average person making a voluntary early repayment currently is 25, and earns just £18,400 a year, it is likely that many of these people are repaying money that they would not end up repaying at all."
A graduate would need to earn £42,750 a year for 30 years to pay off their debts, Dr Leunig said.
Early repayments would have little impact on the overall size of the student loan book, he added.
"Few people have £40,000 sitting around, and extra repayments are likely to be a small percentage of the total owed," he said.
Liam Burns, president of the National Union of Students, also warned against early repayments.
"Ministers must come clean on student finance to ensure that those on low and middle incomes are not duped into chipping away at their outstanding debt," he said, adding that it "rarely makes financial sense to do so".

http://www.timeshighereducation.co.uk/story.asp?sectioncode=26&storycode=419124&c=

Lokolo

worried62 wrote: »

Here is my problem.

I have £10,000 saved in a NatWest Cash ISA saved for my son's University Fees.

I also have a mortgage of £7,500 on a variable rate which I pay 2.5% on, and can draw down further funds at this rate from earlier overpayments.

1. My son has a sister who is 15 years older. When she went to Univeristy there were no tuition fees and she got a full grant. How can it be fair that one sibling gets their education free while the other has to pay a fortune?

2. If fees had remained at £3,250 per year I could have afforded to pay them and would have done. Should I not still pay a similar amount? If I do would it make sense to pay the first year's fees as these will have the most interest?

3. Would it be cheaper if I put my son's fees on the mortgage where the interest rate is only 2.5%, compared to 3% plus inflation which would currently equate to about 8%?

4. If I paid no fees, could I pay the annual interest on the loan to stop it growing - is this possible?

5. My son has applied for a four year course which makes the figures even more horrific. If I retire half way through his course such that our household income drops from £55,000 to £21,000 are the fees reduced?

5. I am thinking of paying the first two years fees only. Is this stupid?

1. and 2. I think are the biggest moral dilemmas.

It's very much a guestimate. The amount he owes doesn't mean he will pay back that much. But on the other hand, he could end up paying back more because of the interest.

He could end up with £60k worth of loans, yet always earn under the threshold and never pay back a penny of it. And vice versa, he could start on a very good salary, and this salary keeps growing and he could pay back the whole £60k worth of debt + interest.

Fees are not reduced because of your income, however a household income of £21k means he will be entitled to grants and additional loan. I don't think he can get the grant without the loan though (not sure on this!)

Personally from your situation that you are retiring soon, I wouldn't think about taking extra mortgage. Would you be able to cope with a huge increase of mortgage repayments and a lower income?

setmefree2

worried62 wrote: »

Here is my problem.

Please, please read the MSE guides fully and carefully.

http://www.moneysavingexpert.com/students/parents-2012-guide

http://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes

and I'm guessing you've read this but read it again :-)

http://www.moneysavingexpert.com/students/should-i-get-student-loan

I have £10,000 saved in a NatWest Cash ISA saved for my son's University Fees.

Is this your only savings? Or a pot set aside just for your son's uni education?

I also have a mortgage of £7,500 on a variable rate which I pay 2.5% on, and can draw down further funds at this rate from earlier overpayments.

I think you'll find MSE advice is not to do this.

1. My son has a sister who is 15 years older. When she went to Univeristy there were no tuition fees and she got a full grant. How can it be fair that one sibling gets their education free while the other has to pay a fortune?

Life's not fair

2. If fees had remained at £3,250 per year I could have afforded to pay them and would have done. Should I not still pay a similar amount?

No, absolutely not. The reason - governmnent student loans are not like normal loans and repayments are based on earnings, you could just end up wasting your money and not reducing your son's student loan repayments at all.

If I do would it make sense to pay the first year's fees as these will have the most interest?

It makes no sense. Don't do it. See above.

3. Would it be cheaper if I put my son's fees on the mortgage where the interest rate is only 2.5%, compared to 3% plus inflation which would currently equate to about 8%?

Is your son going to be a very very high earner? If it's unlikely then the answer is no. But even if he is going to be a very high earner the answer is stll no.

4. If I paid no fees, could I pay the annual interest on the loan to stop it growing - is this possible?

No

5. My son has applied for a four year course which makes the figures even more horrific. If I retire half way through his course such that our household income drops from £55,000 to £21,000 are the fees reduced?

No

5. I am thinking of paying the first two years fees only. Is this stupid?

Yes

1. and 2. I think are the biggest moral dilemmas.

You can still give him the £10k - either as £2.5 each year towards living expences or as a lump sum later in life.

Personally, I'm off the opinion that the maintenance loan doesn't fully cover a student's living expenses (particularly when they are in halls) so it might be nice to give him the money whilst he's at uni but that's just my humble opinion.

melancholly

setmefree2 wrote: »

Personally, I'm off the opinion that the maintenance loan doesn't fully cover a student's living expenses (particularly when they are in halls) so it might be nice to give him the money whilst he's at uni but that's just my humble opinion.

i think i broadly agree with everything there - except a few details on this issue. depending on the uni, the part of the country and the choice of accommodation, the loan can be enough (or in many cases, enough with holiday work, should that be available). i'd pick more of a wait and see approach. if they end up needing the money, then it's there. if you offer it upfront regardless, it will be used, because people adjust to whatever budget they have!

the most important thing to remember about student finance is that there is absolutely no point in parents putting their financial security at risk to avoid their children paying fees, given that the loans system exists. the other important thing is to make sure the student knows exactly what they are signing up for (because they sign the forms and the debt is theirs, not their parents). get them to read all the available guides (MSE and beyond) too.

tyllwyd

My instinct is that once you get to a four-year course, the balance has tipped so that you may as well take the loans, don't worry about paying them off, just think of them as a graduate tax for the next 30 years until it is written off. If you accept that you will be paying for the full time, you don't have to worry about interest rates on the loan amount, the amount your son will pay will depend on his earnings rather than interest rates.


Edited to say - I'm assuming he has to pay four years of tuition fees. Or is it a sandwich course where he works for part of the time?

MrsAverage

I responded to this consultation on line and today received official notiifcation that as a result of the consultation plans to introduce early redemption penalties have been dropped.

However the emial contained a link to the full results and I was horrifed to discover that only 102 ordinary people (of which I was one) had actually taken the time and bother to repsond.

Given the huge number of voices on here and other forums, and the like of bbc news website comments, how come so few bothered to follow the official route to make their views known? I'm ashamed of the low response.

Granted I had to follow a few links to find it, then spend 30 minutes trying to decipher the very biased questions but if I managed to do it so could thousands of others .

Why didn't the rest of you who are concenred use the offical route? I'd be really interested to know.
(sorry for poorly typing, injured hand!)

melancholly

that's a shockingly low number.... it's frustrating actually. all aspects of the student finance process seem to be like this. i can only assume that people don't care until they see the effects on them, which is why the original protests were only attended by students (who the changes wouldn't impact on, but who were bussed in by local NUS groups!). although you'd think more than 102 people looking at 2012 entry would be bothered...... maybe a lot of people contacted their MP rather than going to the official consultation page?

Taiko

Of which, 47 of them were 2sides2everystory

kayr_2

MrsAverage wrote: »

I responded to this consultation on line and today received official notiifcation that as a result of the consultation plans to introduce early redemption penalties have been dropped.

However the emial contained a link to the full results and I was horrifed to discover that only 102 ordinary people (of which I was one) had actually taken the time and bother to repsond.

I'm very surprised too. It wasn't the easiest of things to find and do (like you I thought the questions were rather dodgy) but 102 people!! Didn't follow the link in the email but will look after what you have said. However looking at the public comments at the time, nearly everyone was against it with some pretty good arguments. I think the key might have been that penalties would have really antagonised "natural" Tory voters. Also, as mentioned earlier, Early loan repayments a 'gift to the government'? If they had penalties, they wouldn't get unnecessary repayments to boost the coffers.

setmefree2

MrsAverage wrote: »

I responded to this consultation on line and today received official notiifcation that as a result of the consultation plans to introduce early redemption penalties have been dropped.

However the emial contained a link to the full results and I was horrifed to discover that only 102 ordinary people (of which I was one) had actually taken the time and bother to repsond.

Given the huge number of voices on here and other forums, and the like of bbc news website comments, how come so few bothered to follow the official route to make their views known? I'm ashamed of the low response.

Granted I had to follow a few links to find it, then spend 30 minutes trying to decipher the very biased questions but if I managed to do it so could thousands of others .

Why didn't the rest of you who are concenred use the offical route? I'd be really interested to know.
(sorry for poorly typing, injured hand!)

I assumed that they were only really interested in the opinions of the large consumer protection groups like Which? MSE etc rather than individuals....

I could have been wrong however