student loan -

ktj

Hi, My son goes to university this September to do a 4 year course in Chemistry. We estimate that by the end of his course this will have cost him about £70 - 80k !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Hopefully when he graduates he will be able to secure a job with a decent salary.

Money that he has inherited from his grandparents mean that he could support himself though university without needing a student loan.

However as Martin advises that many people will never pay off all of their student loan, would it make more financial sense for him to get a student loan and to keep his inheritance to enable him to purchase a modest mortgage free property after graduation?

Please is there anyone out there financially astute enough to advise on this? I know that there are lots of pros and cons so I would greatly appreciate hearing people's views on this.

Thanks in advance to anyone who can help. kje.

agrinnall

Yes, of course it would, otherwise Martin wouldn't be suggesting what he does - his view is that it's really not a loan but a form of graduate tax. Having said that, why would you listen to anyone posting anonymously online, your son (if he is already 18) should seek advice from an IFA.

https://www.unbiased.co.uk/

force_ten

if you come out of uni with 80K student debts and go straight into a job paying 30K per annum you would repay your student loan at the rate of £93.00 per month so it will be paid off after you have worked for 86 years

I know salaries will rise and repayments will increase but that is given as an example of why it is said many will never repay their student debts

Ed-1

force_ten wrote: »

if you come out of uni with 80K student debts and go straight into a job paying 30K per annum you would repay your student loan at the rate of £93.00 per month so it will be paid off after you have worked for 86 years

I know salaries will rise and repayments will increase but that is given as an example of why it is said many will never repay their student debts

The Government writes off anything remaining after 30 years so you wouldn't pay anything for 56 of those years.

silvercar

Forecast his likely salary at today's prices for his likely career.

Allow for inflation, inflating salary levels.

Allow for interest rates on the student loan.

Assume the repayment stays at 9% of everything over £21k.

Work out the total repaid over the 30 years (from the April after graduation).

Compare that with the meagre interest rates you could get on the inheritance.

See what works for your son.

zagubov

I'd be surprised if living off the inheritance made more sense than using it to provide security of housing. Supposing he doesn't get a job quickly? (I know that's probably not likely as its a STEM subject) but I doubt it's in his financial interests to live off the inheritance, missing out on a cheap loan which only gets paid off if you secure a highly-paid job.

ktj

Hi again,

Thanks for these comments - they are in line with my thoughts that under the present terms and conditions, a student loan does seem the way to go.

However in view of how the conditions of student loans have already been changed and how pension regulations and retirement ages have been changed, I'm worried that during the 30 years that he is paying off the loan, the repayment regulations will be made much less favourable.

Or am I mistaken in thinking that this could happen?

Is a student loan like any other loan in that once you've signed the agreement the terms and conditions of the loan are fixed and can not be changed.

Does anyone have any thoughts on this. Or does anyone know a link to view the current terms and conditions of the student loan agreement on line?

Again many thanks to anyone prepared to share their thoughts, they will be much appreciated. kje.

Ed-1

ktj wrote: »

Or am I mistaken in thinking that this could happen?

Is a student loan like any other loan in that once you've signed the agreement the terms and conditions of the loan are fixed and can not be changed.

Does anyone have any thoughts on this. Or does anyone know a link to view the current terms and conditions of the student loan agreement on line?

No, you're correct. Treat this loan as a tax that can be varied during its lifetime (as with any other tax):

http://www.studentloanrepayment.co.uk/pls/portal/docs/PAGE/RPIPG001/RPIPS001/RPIPS006/SFE_TERMS_AND_CONDITIONS_1617_D.PDF

Page 3:

The regulations may change from time to time and this means the terms of your loan may also change. This guide will be updated to reflect any changes and it’s your responsibility to ensure you have the most up-to-date version.

When you take out a student loan, you’ll sign a declaration form which states that you’ve read and understood this guide. You must agree to repay your loan in line with the regulations that apply at the time the repayments are due, subject to the regulations being amended from time to time.

ktj

Hi again, Thanks for pointing me in the correct direction!

I have read the t&cs of the loan agreement that you have to sign!

I am horrified to discover "When you take out a student loan, you’ll sign a declaration form which states that you’ve read and understood this guide. You must agree to repay your loan in line with the regulations that apply at the time the repayments are due, subject to the regulations being amended from time to time".

So basically you have no idea what terms and conditions you will eventually be subjected to. So saying that most people will probably never pay off the amount that they originally borrowed (never mind the interest) is a fallacy.

Now that so many people are going to university, in a couple of decades when much of the workforce will then have student loans, it would seem inconceivable that changes have not been made to ensure that these people are required to repay much more of their debt.

In which case, in my son's situation, I am still unsure if getting a student loan is the most sensible option. Discounting any interest that accrues he will end up borrowing £70 - £80k to fund his 4 year course and I think it unlikely that in the future the student loan t&cs will not be changed to ensure that this amount (and much more) will have to be repaid.

So again, I would greatly welcome other people's views on this. Thanks again to anyone who takes the trouble to reply. kje.

agrinnall

To be perfectly honest, this is not your decision, he is (or soon will be) an adult and will be able to make up his own mind. Most students won't be in the position of having a large enough sum of money available to require such a decision, which is why I suggested previously, and reiterate now, that he should seek professional advice on what to do with that money.

Voyager2002

This is not the sort of problem that an IFA can really help to resolve... Although any financially informed person (accountant; IFA; others) would have a helpful opinion.

A couple of point, and I also benefited from a substantial inheritance from my grandfather:
1. Whatever he decides (and it is his decision and no-one else's, as Agrinnall points out), I suggest the he holds on to enough money to provide a decent deposit for buying a home. There is an enormous difference between having to rent and being able to get a mortgage. The benefits of being mortgage-free are less dramatic;
2. I strongly suggest that he consider studying in mainland Europe. Universities in Germany and the Netherlands offer high academic standards; teaching in English; and nominal or zero tuition fees. This option is not open to most British students because they need a student loan to cover living costs (and you can't get a student loan unless you study within the UK) but is a possibility for him. The saving on tuition fees might make this option very advantageous to him, although of course there are many non-financial issues to consider.

Finally, as Martin points out the 'loan repayments' are really a graduate tax, and so will be limited by the kind of political factors that limit other taxes. Just about an entire generation will have student loans to repay, and of course will have votes and will use them if the terms of those loans are changed to something outrageous.