Is student debt actually a good thing?

elfreda69

I am a single parent and have quite religiously saved every spare penny for my son to go to university. I earn a reasonable salary and my sons and I live quite frugally (we live in 2 bed place and I sleep in the living room, if we go on holidays they are always cheap and cheerful).
I have managed to save a considerable sum and will be able to meet the bulk of my son's accommodation and living costs whilst away at uni.

However, I began looking into Martin Lewis' advice about not paying for anything up front. I have come to the conclusion that actually allowing my son to take the highest maintenance loan he can get and actually getting into debt may be the best option. Then, he could use the money I have saved for a deposit on a flat.

My thinking is this:
My son will probably borrow 56k
Currently, students repay their student loan once they earn 21k. They must pay 9% of all earnings above 21k. The loan is wiped out after 30 yrs.

If my son's average salary after working 30 years is 40k per year, then he will repay, on average, 1710 per year.
1710 x 30 years = 51300. He will in effect pay back less than he originally loaned and will not pay off the interest.

Has anyone else looked into this? I know that I have made many assumptions about his earnings etc, but I think that it is wiser to help my son save up for a deposit on a flat and allow my son to take on student debt. Thoughts please

Ed-1

elfreda69 wrote: »

I think that it is wiser to help my son save up for a deposit on a flat and allow my son to take on student debt. Thoughts please

I think you are absolutely correct. Think of student debt as a graduate tax.

No other debt is on better terms than student debt so absolutely student debt should be taken first over mortgage debt.

Mojisola

elfreda69 wrote: »

Then, he could use the money I have saved for a deposit on a flat.

Far better use of the money! (As long as you also have a safety net for yourself for emergencies)

tomtontom

Whilst student debt is better than other types of debt, it certainly shouldn't be seen as a good thing, no debt should. Hopefully your son's aspirations are higher than £40,000, which isn't that great an amount for someone 30 years into their career, even without a degree.

happyandcontented

Yes, it is a graduate tax. The debt does not affect mortgage issues. I don't agree with it, but it is here.

I think you would be much better putting the money into the scheme in which the Government adds to savings when used to fund a house deposit.

PlymouthMaid

I would agree with your reasoning. My daughter paid a chunk off her loan and then wished she had kept it towards a deposit.

Edited to add 'Well done' for saving so successfully for him.

elfreda69

tomtontom wrote: »

Hopefully your son's aspirations are higher than £40,000, which isn't that great an amount for someone 30 years into their career, even without a degree.

I agree, and my hope is that he will earn much, much more than that. He currently wants to work in IT, so he should earn a good salary. However, one never knows how life will turn out. I do think that 40k is a decent salary, but it does not go far if you are living somewhere like London!

GoldenShadow

I think what most poster's say is right.

One thing to bear in mind, though. The 'old' student loans (prior to 2012) were a lot cheaper. As were fees. Me personally (aged 23), I would never pay a chunk of my loan. Ever. My interest rate is about 1.5%. It basically goes down in value per year assuming inflation stays above 1.5%. I think I would be foolish to pay anything whatsoever off voluntarily. However, the new loans, the rate is over 6% interest. The point where it becomes advantageous to pay some off early would come sooner than for someone like me. So just bear in mind someone saying 'oh I would never ever pay any off' could be someone like me. eg. who's loan is going down in real terms per year because inflation is above interest.

Also, don't rely on the rules and regs for student loans staying the same forever.

brenda10

elfreda69 wrote: »

I am a single parent and have quite religiously saved every spare penny for my son to go to university. I earn a reasonable salary and my sons and I live quite frugally (we live in 2 bed place and I sleep in the living room, if we go on holidays they are always cheap and cheerful).
I have managed to save a considerable sum and will be able to meet the bulk of my son's accommodation and living costs whilst away at uni.

However, I began looking into Martin Lewis' advice about not paying for anything up front. I have come to the conclusion that actually allowing my son to take the highest maintenance loan he can get and actually getting into debt may be the best option. Then, he could use the money I have saved for a deposit on a flat.

My thinking is this:
My son will probably borrow 56k
Currently, students repay their student loan once they earn 21k. They must pay 9% of all earnings above 21k. The loan is wiped out after 30 yrs.

If my son's average salary after working 30 years is 40k per year, then he will repay, on average, 1710 per year.
1710 x 30 years = 51300. He will in effect pay back less than he originally loaned and will not pay off the interest.

Has anyone else looked into this? I know that I have made many assumptions about his earnings etc, but I think that it is wiser to help my son save up for a deposit on a flat and allow my son to take on student debt. Thoughts please

My daughter has uni debt and has used the money saved by us all to put down a deposit on a house and get a mortgage, if she had paid off her uni fees she would still be renting at 1100 a month in London, uni debt is the cheapest debt and you are 100% correct. Martin is my hero.

MummyMoo

I agree. Both my friend and I went to uni (we are both 30 years old) and went down different financial paths. My friend didn't want to take out a student loan because she didn't want the debt, so her mum borrowed her the money. She didn't finish uni, she now has two kids and severe depression and is in awful financial mess, made worse buy needing to continue to payback the uni loan to her mum because she is so embarrassed by the amount of debt she has that she can't confide in her mum. Me, I went to uni for years, qualified as a teacher three years ago (even though I had bipolar disorder, I thought I was in control of it, oh how nieve!) but then had a nervous breakdown last year and have been signed off work indefinitely. but I don't have to pay back my student loans.

I know you implied you would be giving not lending the money to your child, but maybe your child will feel obliged to repay you, I know I would if my grandparent did that for me. My daughter has a saving account, £1 a week from birth to 18 years old. If she goes to uni I will tell her to get student loans and use her savings wisely for a first home or something equally helpful.