paying off kids student loans...

Ciprico

I am tempted to do this, but wanted to see what other peoples views are, I've probably missed something

Back in the day Martin Lewis encouraged students to take loans, and keep any spare cash for a house deposit (?), on the basis the student loan is was a cheap loan, and saving for a deposit is very hard.

Move on 4/5 years and it seems student loans are no longer so cheap (RPI + 3% = 6.2%) {Note the higher RPI is used, not the lower CPI as used for triple lock!}.

So my thinking is bring forward the kids inheritance to pay off their £50k loans.

One aspect I like is I don't fully trust the kids not to blow a cash gift, but giving them effectively a 10% tax cut for life (ok 30/35 years) sits well, as well as being a way to hopefully reduce their IHT if I survive 7 years

There does seem some momentum to reduce the rate to someting fairer (again driven by Martin Lewis), so the downside is paying off the loan, then the loan gets forgiven or the rate reduced…

I AM GENUINELY INTRESTED IN RESPONSES, PLEASE DON'T GET POST REMOVED BY POLITICAL RANTS ABOUT THE FAIRNESS OF STUDENT LOANS !!

gpman

Student loan repayment: should I pay back early? - MSE

jaybeetoo

https://forums.moneysavingexpert.com/discussion/comment/81879646#Comment_81879646

That’s Plan 1. I think the OP is referring to Plan 2.

jim1999

Well, only the postgrad loan is currently accruing at 6.2% - normal student loans are 3.2%.

https://www.gov.uk/repaying-your-student-loan/what-you-pay

They'll be very lucky to get a mortgage at less than 3.2%.

(If you're talking about the brief period whilst they're still studying, that's a bad comparison point to use when you're considering a thirty year period)

gpman

https://forums.moneysavingexpert.com/discussion/comment/81879662#Comment_81879662

In which case:

Martin Lewis: Plan 2 student loan? Beware Government freezing repayment threshold

bsms1147

https://forums.moneysavingexpert.com/discussion/comment/81879664#Comment_81879664

Plan 2 is up to 6.2% (depending on your income) as per your link.

Dead_keen

To me there are a few choices:

1. Give the kid £50,000 and let them spend it on what they like. Depending on your kids: One might pay off the loan, another might put it towards a deposit on a house, and another might be just landing at Heathrow after spending three weeks in Brazil, having told you about their next trip to Argentina in April.
2. Give the kid £50,000 and tell them to pay off the loan.
3. Lend £50,000 for repaying the student loan and ask them to repay you in the same way that they would pay the SLC. Saves them interest.

For me, 1 and 3 are completely reasonable things to do (do both if you can afford). I would not do 2 - control freakery at its most extreme.

jaybeetoo

I sent my son a link to a student loan repayment calculator. There are several available. They all make assumptions on future inflation and they don’t take into account the freezing of the repayment threshold. My son was horrified how much he’d have to pay back and how much of it was interest.

https://www.studentloanrepaymentcalc.co.uk/

silvercar

I suspect the same horror would be shown if you looked at the interest paid on a mortgage, or any other loan.

Smudgeismydog

I’m paying my daughter’s rent to avoid her having to take a Student Loan, (she’s in her first year under Welsh Student finance ).

The consensus for a long time has been that ‘most people won’t pay it all back’. However, with the current interest rates, it seems that many will pay so much more than they originally borrowed, and this concerned me. This would also be hugely concerning for my daughter, particularly as the interest starts accruing from Day 1, while she is still studying.

I listened to a radio interview today where a recent graduate explained how despite him making repayments all year, the debt at the end of the year was higher than when he started.

I take on board points re; using the money for something else that would be beneficial to help them into adulthood e.g a house deposit, but this feels the right decision for us.

saajan_12

One aspect I like is I don't fully trust the kids not to blow a cash gift, but giving them effectively a 10% tax cut for life (ok 30/35 years) sits well, as well as being a way to hopefully reduce their IHT if I survive 7 years

If you're thinking about financial responsibility, do you think the 50k lump sum would be blown more or less than the extra 10% saved each month ? Eg would they just fritter away 10% of their monthly income instead on random wants and not actually save it up to a deposit etc?

The alternative is when ready for a house deposit or something, you could gift the money as an early inheritance then.

Basically less about each £ of interest and more about what will leave them in the best position long term.