With the help of student loans, many students in the UK, whether studying part-time or full-time, are able to cover the cost of attending university. Fortunately, mountains of savings are not necessary and even those who would otherwise struggle with tuition fees can apply for help. That being said, student finance can be complex— especially when it comes to repaying student debts.
There are a number of different types of funding available for students, with the most common being the tuition fee loan and the maintenance loan. The tuition fee loan is, as the name suggests, is designed to cover the costs of tuition, whereas the maintenance loan is paid directly into the a student’s bank account to help them with general living costs while living and studying at university.
However, as with any loan, they must be repaid. Tuition fee loans and maintenance loans are repayable once a student has graduated from university, is in employment and has started earning over the relevant repayment threshold. With this in mind, it begs the question for many parents whose children face repaying student debts in the future: should I pay off my child’s student loan?
In this post, we’re going to explore and shine a light on the various arguments for and against paying off your child’s student loan— whether that be by paying the fees up front or by helping your child pay off the loan once they graduate to reduce the debt earlier. What are the advantages of helping your child with the cost of attending university, and what exactly are the disadvantages?
Should I pay my child’s university fees up front?
It only makes sense that many parents are concerned about their children getting into debt once they graduate from university. With that, some may consider paying their child’s fees associated with attending university up front, so the prospect of debt is eradicated. But is it a logical decision?
On one hand, there is the obvious benefit that your child graduates from university debt-free. As well, although student loans do not show up on your credit file, some lenders do in fact take them into consideration when considering mortgage applications. Money Saving Expert, Martin Lewis, says that, “Having a student loan is worse than not having one when it comes to getting a mortgage.” Though be that as it may, paying your child’s university fees up front could actually leave you tens of thousands of pounds worse off, even if you’ve got enough savings anyway.
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Why? When you understand how student loan repayment works, you come to realise that paying the fees up front can be bad financial logic. This is because graduates are only required to pay it off if they earn enough. On top of that, any and all remaining debt is wiped after 30 years, meaning that if your child never gets a job earning over the threshold, they won’t have repaid a single penny. Of course, the hope behind your child attending university is that they graduate and go on to earn a high salary— however, even those earning over £25,000 will never pay it back within the 30 years.
All of this means that you could end up paying tens of thousands of pounds that may never need paying back. On the other hand, it could be argued that if your child is guaranteed to earn a high salary after graduation and you’ve got the savings to pay their fees up front, then it may be worth avoiding the interest they would see on their repayment— but even so, it still doesn’t make it the best financial decision you could make for your child’s future. It may make better financial sense to keep the money you want to pay and invest it in your child’s future— perhaps for a house deposit.
Are there any advantages to paying off my child’s student loan early?
With an evident amount of risks involved in paying off your child’s university fees up front, many parents turn to considering making voluntary payments once their child has graduated in order to reduce the debt earlier. This is something that has its pros and cons depending on circumstances.
In many cases, graduates who go on to earn high salaries may be better off overpaying their loan, as by paying it off quicker, they will incur less interest. For those on lower salaries, it again has the potential to reduce the amount of interest paid on the total loan, however, it does make it much less likely for any and all debt to be written off after the 30-year period, so you risk paying what may never need to be repaid. Once again, it is worthwhile considering helping with material needs first.
With all of this in mind, whether you pay off your child’s student loan or not ultimately comes down to your personal financial circumstances and that of your child’s. To get a better idea of how much your child will really be required to pay once they graduate from university, you can get a rough estimate by inputting the relevant details into Money Saving Expert’s Student Loan Calculator.
It is also worth noting that graduates can follow several career paths, and may not be earning consistently well into the long-term. They may take a long career break in order to raise a family or travel the world, and so would be likely to repay substantially less during that time. This is something that no calculator can take into consideration, and something that would also mean you losing out on tens of thousands of pounds if you decided to pay fees up front or early for your child.