Student finance vs using money from Child Trust Fund

NFC71

My son is due to start university this Sept (24) and is undertaking a 4-year integrated MSCi, which at the current rate will incur fees of £37K (assuming they're not raised in the interim).

We've saved consistently in his Child Trust Fund which is due to mature soon (on his 18th birthday) and currently has a value of £34K. 

We've calculated the amount payable for a student loan (assuming he hits the payment threshold from day 1 in his first job - which based on his specialisms I would expect him to do) ... meaning he'll likely pay back £102K over the 40years of the loan. Which, even taking into account the fact it doesn't start paying back until your cross the thereshold, or is written off after 40years, to us it just seems like bad economics.

We're seriously wondering whether it would be better to use the money saved to pay for his fees, and avoid a student loan altogether. Or keep that money in an ISA / High interest rate account (which we calculated would compound to around £40K over the 4years he'd be at uni) which he could use as a deposit on a house once uni is finished. 

To any parents - if you had your time again, what would you do?

To any students who have graduated with debt - which would you rather have at the end? A degree + student loan + plus available cash for a house deposit, or A degree + no debt but no house deposit. 

Tucosalamanca

Is your son going to be living at home and will you be funding him entirely?
If not, you've forgotten the £10k per year (or thereabouts) living costs.

My eldest is currently doing a four year MSCi.
Three year's full fees and reduced fees for placement year are going to be around £30k.
Four year's living expenses will be £40-50k, placement earnings should be around £20k.
Overall estimated debt £50-60k.

You need to calculate potential earnings and run through several scenarios.
£102k over 40 years is just one of many outcomes.

We're taking every single loan available.
When the degree is completed and a career found, we'll assess wage potential and go from there.

If earnings are looking good, the loans will be quickly repaid and any capital used will be quickly replenished (particularly in the early years after graduation when they still have a frugal mindset).
The only cost to them will be a few year's interest (partially offset by savings interest).
If they end up repaying £100k something has gone very wrong!

If it looks like they will be a low earner (not expected) then the funds will never be repaid and it will simply be a graduate tax. They will have capital available to help with a house purchase or whatever.

I've spent many hours going through this, at this moment, almost one year in, it's working out very well.

As long as savings rates stay this closely aligned to interest being charged, I don't think that it's nearly as big an issue as I initially feared.
Having a sensible, frugal child who wants to earn money also makes it that little bit easier....

silvercar

Tucosalamanca said:

Is your son going to be living at home and will you be funding him entirely?
If not, you've forgotten the £10k per year (or thereabouts) living costs.

My eldest is currently doing a four year MSCi.
Three year's full fees and reduced fees for placement year are going to be around £30k.
Four year's living expenses will be £40-50k, placement earnings should be around £20k.
Overall estimated debt £50-60k.

You need to calculate potential earnings and run through several scenarios.
£102k over 40 years is just one of many outcomes.

We're taking every single loan available.
When the degree is completed and a career found, we'll assess wage potential and go from there.

If earnings are looking good, the loans will be quickly repaid and any capital used will be quickly replenished (particularly in the early years after graduation when they still have a frugal mindset).
The only cost to them will be a few year's interest (partially offset by savings interest).
If they end up repaying £100k something has gone very wrong!

If it looks like they will be a low earner (not expected) then the funds will never be repaid and it will simply be a graduate tax. They will have capital available to help with a house purchase or whatever.

I've spent many hours going through this, at this moment, almost one year in, it's working out very well.

As long as savings rates stay this closely aligned to interest being charged, I don't think that it's nearly as big an issue as I initially feared.
Having a sensible, frugal child who wants to earn money also makes it that little bit easier....

I like this post. The problem comes with seeing the future and what changes will happen that may make the decision worthwhile or regrettable. Careers can change, new partners influence outcomes etc Government can change the rules etc

One of those situations where the extreme positions are easy - a low paid or sporadic/ short career makes taking the loans an obvious decision. Similarly, those with plenty of money to fund house deposits, pensions and student life  may feel there is little point in taking the loans. Most people fall between the two, making the decision harder.

Tucosalamanca

silvercar said:

Tucosalamanca said:

Is your son going to be living at home and will you be funding him entirely?
If not, you've forgotten the £10k per year (or thereabouts) living costs.

My eldest is currently doing a four year MSCi.
Three year's full fees and reduced fees for placement year are going to be around £30k.
Four year's living expenses will be £40-50k, placement earnings should be around £20k.
Overall estimated debt £50-60k.

You need to calculate potential earnings and run through several scenarios.
£102k over 40 years is just one of many outcomes.

We're taking every single loan available.
When the degree is completed and a career found, we'll assess wage potential and go from there.

If earnings are looking good, the loans will be quickly repaid and any capital used will be quickly replenished (particularly in the early years after graduation when they still have a frugal mindset).
The only cost to them will be a few year's interest (partially offset by savings interest).
If they end up repaying £100k something has gone very wrong!

If it looks like they will be a low earner (not expected) then the funds will never be repaid and it will simply be a graduate tax. They will have capital available to help with a house purchase or whatever.

I've spent many hours going through this, at this moment, almost one year in, it's working out very well.

As long as savings rates stay this closely aligned to interest being charged, I don't think that it's nearly as big an issue as I initially feared.
Having a sensible, frugal child who wants to earn money also makes it that little bit easier....

I like this post. The problem comes with seeing the future and what changes will happen that may make the decision worthwhile or regrettable. Careers can change, new partners influence outcomes etc Government can change the rules etc

One of those situations where the extreme positions are easy - a low paid or sporadic/ short career makes taking the loans an obvious decision. Similarly, those with plenty of money to fund house deposits, pensions and student life  may feel there is little point in taking the loans. Most people fall between the two, making the decision harder.

Thank you, it's taken me a while to reach this perspective.

As you say, for those in the middle it could be much harder.
If earning 50,60,70k, it's not difficult to see a situation where you could be trapped making payments that barely cover interest charges (that are compounding) and unable to repay the capital due to other commitments (housing costs being the obvious one).

As Martin Lewis has often pointed out, there's no point being half hearted about it and making partial repayment.
Repayments are the same whether you owe £5,000 or £50,000.
That's why we're taking every penny available. We're in a crazy situation where we're borrowing more than is needed and putting it into high interest savings accounts until graduation (it might even help with a house deposit yet).

I'd like to think that it will all be repaid quickly. However, I do know a few people who are very academic (with PHDs) and still stuck in low pay jobs. On that basis it seems prudent to take the loans and see how it plays out....