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

atypical

davestretty wrote: »

I've used the MSE calculator. OMG she will borrow ~£75k (assuming tuition fees don't increase!) and it is likely that she will have to pay back in excess of £250,000 over less than 30 years. Yes I did say >£250k i.e a quarter of a million pounds!. I daren't show her these figures she is already frightened to death of the amount of debt she will have.

I'm not sure how you got these figures. How long is the course and how much will she get in maintenance loans?

Either way, the figure is largely irrelevant. Knowing she'll repay 9% over £21k for 30 years matters more.

Mrs_Accountant

I think the interest rate of RPI + 3% is unjustifiable and unsustainable. What makes it worse is that this fact is not properly advertised. Its Ok to argue that it doesnt matter because most students won't re-pay their loan anyway, but that just underlines the fact that the whole system is flawed. How can it be an incentive to leave University and earn a good salary if you are the one having to repay a loan which has escalated by compound interest? It is just a system set to encourage you to study a hobby degree and then not get a job, as others on this forum have said. Also the SLC portal to look at your loan and see the interest being added is appalling- you can't get a proper statement or see the interest charges, just see the total outstanding so to check means going back through your loan receipts and realising the difference is interest.
In a few years time they will realise that the public purse cannot sustain the debt of the loan book with so few students re-paying. There must be better ways than this....

Taiko

You don't need to go to university to become an accountant though. As far as I'm aware, it's advertised enough.

jimjam3_2

I note none of our calculations take account of inheritance tax, which stands at 40% above the nil band. If you are an older, richer parent and your estate is subject to death duties, surely this should be taken into account when deciding whether to pay the student fees up front, since, effectively they only cost 60%.

joepubli

MSE gives the impression that taking a loan is a no brainer in nearly all cases.

I respectfully disagree. At RPI+3% cumulative it is a very expensive loan indeed given that many people have mortgages at c.2% pa. MSE, rightly say that for many students the rate won't matter as they will never pay it back.

However, for anyone who will be going into the professions or working in London on even a mid-level position, they will easily reach the threhhold and WILL pay back the loan well within 30 years at RPI+3% - that rate is extortionate and means that those who do "proper" degrees and earn well subsidise those who do "lifestyle" degrees and get modest jobs.

If the alternative for parents is to leave the money in the bank, they will earn nothing close to the loan rate and will pay tax on it.

For parents with capital (or ability to borrow cheaply) and expectation that their child will in due course be a higher rate tax paper, it is financially much better to not take the loan.

However, the issue is not wholly financial - will your child work as diligently if mummy pays or will he be more motivated to "get value" for HIS loans?

A half way house may be to take the loan and then pay it off as soon as they qualify IF they are headed for a good job with prospects - yes you will pay a few k in interest but it might be worth it to ensure that the student is motivated.

The system effectively makes you take a gamble on the future prospects of your child - If you are pessimistic, take the loan. If you are optimistic that he will do well and earn a high salary, pay up!

QUESTION - I am not sure if the repayment is 9% of the post tax income (so being paid out of net income) or gross income before it is taxed.

Joe

Lokolo

joepubli wrote: »

MSE gives the impression that taking a loan is a no brainer in nearly all cases.

I respectfully disagree. At RPI+3% cumulative it is a very expensive loan indeed given that many people have mortgages at c.2% pa. MSE, rightly say that for many students the rate won't matter as they will never pay it back.

However, for anyone who will be going into the professions or working in London on even a mid-level position, they will easily reach the threhhold and WILL pay back the loan well within 30 years at RPI+3% - that rate is extortionate and means that those who do "proper" degrees and earn well subsidise those who do "lifestyle" degrees and get modest jobs.

Although a fully agree, its very difficult to determine, at 18 whether or not you will end up with a high paid job.

Many of my teachers were not impressed with my decision of what I studied (many classed it as a "lifestyle" degree as it was to do with computer games!) at an ex-poly. However I have now been working in the City for 3 years, have a very good benefits package and yes, I would be one of those paying extortionate interest rates.

On the other hand, someone I joined with, who studied economics at Cambridge, failed to stay within the company after 6 months after finding out he wasn't good enough.

It is very difficult to determine how much someone will earn after university.

You have to weigh it up. The person may end up losing their life a number of years after graudating. A loan would be wiped. Parens giving money would have been lost (although I wouldn't say it would have been a waste, but it could have been avoided).

If the alternative for parents is to leave the money in the bank, they will earn nothing close to the loan rate and will pay tax on it.

For parents with capital (or ability to borrow cheaply) and expectation that their child will in due course be a higher rate tax paper, it is financially much better to not take the loan.

Yes but no-one is pyschic

The system effectively makes you take a gamble on the future prospects of your child - If you are pessimistic, take the loan. If you are optimistic that he will do well and earn a high salary, pay up!

Yep, assuming the parents have the money ofc. It is a big gamble, the interest rates are appaling and should be stopped, but the benefits of a loan are still resonable.

QUESTION - I am not sure if the repayment is 9% of the post tax income (so being paid out of net income) or gross income before it is taxed.

Joe

Calculated on gross salary but paid after net.

joepubli

Lokolo wrote: »

Yes but no-one is pyschic

Agreed, but we all need to use our crystal ball and make the best guess.

There will always be exceptions. But in general terms, someone who performs well at A levels and is going to a respected university and intends to work in the London area will most likely not benefit from the loan.

And, IF parents are higher rate tax payers and have the cash or can borrow at around 2%, they would most likely be better off not taking the loan.

For those wanting to assess the risks better - take the loan and repay it moment you are comfortable s/he has a good career.

The threshholds are not high for London based jobs where starting salaries of £30k+ are not uncommon.

patanne

Is this still good advice in view of the sell off of student loans to Erudio who are still taking direct debits they are not entitled to and seem to be trying to trick people into defaulting when they are entitled to defer? The promise to not effect credit reports unless you default (not defer) also seems to be going.

Ed-1

patanne wrote: »

Is this still good advice in view of the sell off of student loans to Erudio who are still taking direct debits they are not entitled to and seem to be trying to trick people into defaulting when they are entitled to defer? The promise to not effect credit reports unless you default (not defer) also seems to be going.

The Erudio sell-off applied to a very different type of student loan. Pre-98 loans were sold off and these are repaid on a mortgage-style basis (with direct debits and fixed payments etc). Post-98 loans are income-contingent which means they are based on earnings and are taken through the tax system which means if they were sold-off (the sell-off of these loans has recently been abandoned) they are highly unlikely to be affected by the same types of problems as the others were.

patanne

Post 98 loans have already been sold off to Erudio and are some of the ones with problems.