Student loans - a poisoned chalice?
Discussion
I still can't work these out and what is best to do for my lad.
Instincts say they are terrible things with bad interest rates and never ending compounded spiralling debt. Avoid.
Some consider them like a 9% student tax once you earn over 30k pa. And if you never get to paying them off due to the compounded Interest they get wiped when you are 55 or so. But if you hit £100k when you are 45 (and I hope he does, doing medicine afer all) then it's payback time for all that ghastly rolled up interest an he'll be paying 49% tax on anything over 50k. Unmotivational. Awful.
It's all crystal ball stuff though and say you take 6 years off to rear kids and earn 30k pa after you may be very quids in...
But he just said if he doesn't end up earning tidy money the repayments will be exactly the same if he borrowed 9k or 50k... So why miss out?
I pay for his digs etc and he also works a few hours a week at £15ph but I need some strategic crystal ball calculator... What to do?
Ken Figenus said:
I still can't work these out and what is best to do for my lad.
Personal opinion - if you can afford it just pay as you go. I hate the idea of landing kids with debt. TBH I loathe the whole student loans system although I recognise it enables people to get to University who wouldn't otherwise be able to afford. It seems nuts to me that under-achievers can just walk away while achievers keep on paying and paying and paying.
If he's doing Medicine then surely he'll be over £100k and well before 45, no?
It amazes me that it takes people to have children going through university to bring it home how s
t it is. When HICBC was £50-60k and I was still paying SL my effective tax rate was 61% IIRC, thanks boomers.
If you've not got it to give him then I'd do a few calculations based on best guesses but I bet he'll be better off overpaying. Better to pay £150k off over 15 years than £200k off over 25, or whatever it'll be.
It amazes me that it takes people to have children going through university to bring it home how s
t it is. When HICBC was £50-60k and I was still paying SL my effective tax rate was 61% IIRC, thanks boomers. If you've not got it to give him then I'd do a few calculations based on best guesses but I bet he'll be better off overpaying. Better to pay £150k off over 15 years than £200k off over 25, or whatever it'll be.
Panamax said:
Ken Figenus said:
I still can't work these out and what is best to do for my lad.
Personal opinion - if you can afford it just pay as you go. I hate the idea of landing kids with debt. TBH I loathe the whole student loans system although I recognise it enables people to get to University who wouldn't otherwise be able to afford. It seems nuts to me that under-achievers can just walk away while achievers keep on paying and paying and paying.
LOL - well he got interested via my own DIY home surgery for family and friends but time to do it right now ;-)
I've researched more and its pretty split between embrace it and shun it!
I think we have to shun it as the idea is he will get a good salary career and he will then be fully servicing this mounting debt till its paid. He has always worked on the side to earn a few quid since school as he likes having a few quid in his pocket to enable travel etc and that ethos will continue i'm sure.
Cheers
I've researched more and its pretty split between embrace it and shun it!
I think we have to shun it as the idea is he will get a good salary career and he will then be fully servicing this mounting debt till its paid. He has always worked on the side to earn a few quid since school as he likes having a few quid in his pocket to enable travel etc and that ethos will continue i'm sure.
Cheers
My eldest will be going in a couple of years and won't need it but I'm planning to have him borrow the max available. Partly for the carry - I expect to earn a greater return on the money than the interest rate on the loan anyway and am happy to run that risk - and partly just to preserve optionality. I can always choose to clear it once he's done or any point after for whatever reason, but if I pay upfront that's irreversible.
Ken Figenus said:
I think we have to shun it as the idea is he will get a good salary career and he will then be fully servicing this mounting debt till its paid.
When I was at Uni a long time ago student loans were 0% initially than just inflation. I wasted in on Xbox games and beer. The most sensible people had their parents help fund student houses using parts of the loan, which their mates than rented (like me), and than sold the houses for a decent profit when they finished Uni (pre 2008 days). The interest rate figures these days though look scary, and if he stays in Medicine he'll hit £100K way before 45 when the time comes round.
NowWatchThisDrive said:
My eldest will be going in a couple of years and won't need it but I'm planning to have him borrow the max available. Partly for the carry - I expect to earn a greater return on the money than the interest rate on the loan anyway and am happy to run that risk - and partly just to preserve optionality. I can always choose to clear it once he's done or any point after for whatever reason, but if I pay upfront that's irreversible.
Precisely, the interest rates are low enough that you can comfortably match or exceed it with a Vanguard account, especially if you can put some of it in a Lifetime ISA and get the free 25%. I took out a full maintenance loan for my course, despite knowing I could just about get by on the cadet salary because I knew that beating or matching the interest rates would be easy enough, and I would have the advantage of money being there if I needed it. Student loans have better terms than almost any loan you could get elsewhere.So long as you trust them not to spaff it all on car insurance, beer and temu car accessories like some of my classmates...
My lad sent me a whatsapp recently on this subject. He's a doctor in his third year now . He has an £80k student loan and despite repayments the balance owed went up £700 last year due to interest. It seems a bit nuts to me, It seems even crazier when many are struggling to even get posts after their initial 2/3 year training.
Another consideration is IHT. Say your estate will require paying of IHT and you die before the loan is wiped at 30 years, then of the £50k you could have given your child now to repay the loan they will lose £20k (40%) plus growth of it anyway and they’ve still paid the 9% extra tax in between.
Obviously you need to know when you’ll die but we’ll be into our 80s by the time our son’s gets written off so it’s a difficult one to call.
The interest rate is obscene and very few will be repaying faster than the interest compounds so they will be stuck with this tax for the full 30 year term.
Obviously you need to know when you’ll die but we’ll be into our 80s by the time our son’s gets written off so it’s a difficult one to call.
The interest rate is obscene and very few will be repaying faster than the interest compounds so they will be stuck with this tax for the full 30 year term.
I paid my son's student loan off last year and he is paying me back over 10 years.
it made sense to do so after I created a spreadsheet based on the current student loan interest rates. it demonstrated that based on his expected salary growth and likely payments he would have paid £90,000 in interest over 30 years but would only have paid down £10,000 of the debt and would still have £30,000 owing!!
he was much happier with the prospect of paying slightly higher monthly fees to me but having the entire thing paid off in a decade!
to be honest I will probably write it off before then but at the moment I thought it was good discipline for him to have the monthly payments to keep him focused on his career and employment prospects.
it made sense to do so after I created a spreadsheet based on the current student loan interest rates. it demonstrated that based on his expected salary growth and likely payments he would have paid £90,000 in interest over 30 years but would only have paid down £10,000 of the debt and would still have £30,000 owing!!
he was much happier with the prospect of paying slightly higher monthly fees to me but having the entire thing paid off in a decade!
to be honest I will probably write it off before then but at the moment I thought it was good discipline for him to have the monthly payments to keep him focused on his career and employment prospects.
DT1975 said:
My lad sent me a whatsapp recently on this subject. He's a doctor in his third year now . He has an £80k student loan and despite repayments the balance owed went up £700 last year due to interest. It seems a bit nuts to me, It seems even crazier when many are struggling to even get posts after their initial 2/3 year training.
There was a similar case study on TV recently where a girl paid off £2K one year but the interest was £3K. Do the former students choose how much to repay, or has some idiot civil servant designed a system that can never be paid off?A993LAD said:
I paid my son's student loan off last year and he is paying me back over 10 years.
it made sense to do so after I created a spreadsheet based on the current student loan interest rates. it demonstrated that based on his expected salary growth and likely payments he would have paid £90,000 in interest over 30 years but would only have paid down £10,000 of the debt and would still have £30,000 owing!!
he was much happier with the prospect of paying slightly higher monthly fees to me but having the entire thing paid off in a decade!
to be honest I will probably write it off before then but at the moment I thought it was good discipline for him to have the monthly payments to keep him focused on his career and employment prospects.
If your planning on writing it off anyway it could be a good idea to put it into a help to buy isa or something like that for him. If he hasn't already got oneit made sense to do so after I created a spreadsheet based on the current student loan interest rates. it demonstrated that based on his expected salary growth and likely payments he would have paid £90,000 in interest over 30 years but would only have paid down £10,000 of the debt and would still have £30,000 owing!!
he was much happier with the prospect of paying slightly higher monthly fees to me but having the entire thing paid off in a decade!
to be honest I will probably write it off before then but at the moment I thought it was good discipline for him to have the monthly payments to keep him focused on his career and employment prospects.
Simpo Two said:
DT1975 said:
My lad sent me a whatsapp recently on this subject. He's a doctor in his third year now . He has an £80k student loan and despite repayments the balance owed went up £700 last year due to interest. It seems a bit nuts to me, It seems even crazier when many are struggling to even get posts after their initial 2/3 year training.
There was a similar case study on TV recently where a girl paid off £2K one year but the interest was £3K. Do the former students choose how much to repay, or has some idiot civil servant designed a system that can never be paid off?On a plan 2 loan, for instance, someone with an outstanding loan of £50,000 would need to earn around £63,000 (and repay £3,100 per year, or £260 each month) to see their loan balance stay the same – and would need to earn more than this to see it start to come down
In my view it's worth paying off if you can do so (Either up front or after graduation). For reference as a lowly 3 year + 1 year placement Engineering Student who graduated in 2017 on a Plan 2 Loan I borrowed a total of £50,000 for tuition and maintenance (London Uni so the maintenance loan was higher). I've been employed continuously since graduation and paid back £14,200 since then, however thanks to the ridiculous RPI+3% Interest Rate I now owe the Student Loan Company £64,000...
It's an absolute joke of a system
It's an absolute joke of a system
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