Talking about student loan

IamWood

My first son is going to university this summer.  Hooray

Is it worth it for him to take out a student loan?

I'm able to fund his tuition and accommodation if I wish. I can also use my approved re-mortgage (pending on my signature) to finance his education (interest rate of 1.49% for the next 5 years). Any advice and comments would be appreciated.

Thank you in advance!

El_Torro

Depends.

The interest on student loans certainly isn't cheap, the amount borrowed certainly isn't small either. On the other hand he will only pay it back when he's earning and if he still owes money when he's 65 it's written off anyway. So if he's likely to have a high paying job where he pays it all back it might make financial sense for you to fund his education.

Then again if he's going to be a high earner why should you fund his education up front and in full? Better off letting him manage the debt himself so he can learn some valuable financial lessons. It's not like it's "real" debt, there is not really any danger of him having to declare bankruptcy as a result of his student loan debt or have bailiffs come knocking on his door. Especially if he is a PAYE employee the money will be gone from his pay before he has a chance to spend it anyway. 


It's easy for me to say this since I don't have kids but I'll say it anyway: Even if you can afford to fund it yourself I'd say let him take the loans and start learning the value of money sooner rather than later.

kaMelo

IamWood said:

My first son is going to university this summer.  Hooray

Is it worth it for him to take out a student loan?

I'm able to fund his tuition and accommodation if I wish. I can also use my approved re-mortgage (pending on my signature) to finance his education (interest rate of 1.49% for the next 5 years). Any advice and comments would be appreciated.

Thank you in advance!

Do not borrow money to fund your child's education,  let them take the student loan
If you still want to help your child financially, rather than funding their education give them the money towards a house deposit.

MX5huggy

Have a listen to Martin from Wednesday https://www.bbc.co.uk/programmes/p0bvqz93
Take the loan only once the course is completed and a career established when you can make an assessment of likely future earnings should you consider paying it off, but only if you pay all of it off paying of bits is pointless. 

I don’t intend paying mine off I salary sacrifice to my pension to avoid paying as much as possible. 

Albermarle

Don't forget there are two parts to the loan .
Tuition fees , typically £9000 pa .
Maintenance loan ( for living costs ) this can vary from about £3K to £7K I think depending on the income of the family.

You can take the loan for one part and pay for the other if you want . Although the usual recommendation is to take the max loan out . Even if you do this you will most likely have to subsidise the cost of living as even £7K is a bit tight to live off , especially in the more expensive locations.

Malthusian

El_Torro said:

On the other hand he will only pay it back when he's earning and if he still owes money when he's 65 it's written off anyway.

For a new loan on Plan 2 terms you only pay back when you are earning more than the national average.

The loan is written off 30 years after you become due to repay. For someone graduating at 21 that would be 51, well before 65. (This is being increased but only affects the OP's son if he starts after September 2023.)

But the thrust of your post is completely correct.

IamWood

Thanks to all. I take your advice and my son has now submitted his student loan application.

I understand that my total income will be my salary minus my SIPP contribution as calculated by the online application.

Another benefit of the application is potentially made my son eligible for certain bursaries and scholarships.

IamWood

My son's student loan has been approved. The efficiency is beyond my expectations. Thanks to my maximum contribution to the SIPP in 2020/2021. He appears to be getting the maximum maintenance loan. The university could potentially award him a few thousand bursaries and scholarships -- every little helps.

kaMelo

The household income calculation for someone starting Sep 2022 will have used and asked for 2020/21 earnings.

IamWood

kaMelo said:

The household income calculation for someone starting Sep 2022 will have used and asked for 2020/21 earnings.

Yes, I made a mistake in my post. I corrected it accordingly. Cheers