With A-level results in hand and University place secured, deferred or perhaps your child is facing the prospect of clearing, re-sits or a complete re-think your mind will at some point turn once again to the prospect of University Tuition Fees and Maintenance Loans.
Firstly it is important to think about Student Loans more as a Graduate Earnings Tax than a loan as the 2019 loans are only paid at a rate of 9% of everything earned over £25,725, though it’s wiped after 30 years, regardless. If you never earn above £25,725, you’ll never repay a single penny.
This is really important to understand.
It is also not treated in the same way as other debts. For example:
- Student loans don’t go on your credit report.
- Student loan repayments are proportionate to income.
- If you lose your job or take time off, so you’ve no income, you don’t need to repay student loans.
- While if you can’t pay normal debts you could see debt collectors at your door – with student loans this isn’t an issue as most people pay them via the payroll. Though if you’re self-employed/those paying via self-assessment you could be sent debt collectors if you resist all SLC’s other efforts to collect debt.
- You can’t lose your house if student loans aren’t repaid (unlike secured debts).
Someone taking out 3 years worth of Student Loans and Maintenance Loans could find themselves borrowing £53,040 in total. On the face of it this can seem dauntingly high.
Should your child never earn above the threshold of £27,750 then they will never pay a penny of this back.
Only someone earning above national average wages will be face with fully paying off their Student Loan. Martin Lewis at Money Saving Expert has done a great job on this here:
Do this instead
So what should you do if you are fortunate enough to be considering funding your child’s student tuition?
What could be more valuable to your child over their lifetime?
With a number of my clients we have taken the money that would have been used to pay for tuition fees and invested it with a view to helping children onto the property ladder once they are graduated and settled into work.
This has many upsides. Not only does it help your child onto the property ladder in their early to mid 20’s at a time when the average age of a first-time buyer is 30 and it could significantly increase the options available for home purchases but perhaps most importantly it gets them out of your house!
Near our head office in Preston £50,000 would be a significant deposit on a 3 or 4 bedroom detached property. In London, where a number of our clients work, £50,000 might be the minimum deposit required to even think about getting onto the property ladder.
At the end of the day your wealth should be working towards things that are important to you and this is why we put your lifestyle at the forefront of every piece of advice we give.
