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Should You Pay Your Child’s University Fees? · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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  Speaker 2: Welcome to MEREN Talks Your Money, the personal finance edition
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  Speaker 2: of MEREN Talks Money. In these bonus podcasts, we talk
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  Speaker 2: about the best strategies for making the most of your money.
• 0:22
  Speaker 2: I'm MEREN, Sumset Web and with me senior reporter and
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  Speaker 2: Money Distilled author John Steppegg Hi John, Hey mil So.
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  Speaker 2: This week we're answering a question from James.
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  Speaker 3: James asked should I attempt to pay my child's university
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  Speaker 3: fees and living costs, assuming I can just about afford
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  Speaker 3: to do so? Or do I encourage my child to
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  Speaker 3: max out the available student loans and only make repayments
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  Speaker 3: when absolutely necessary?
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  Speaker 1: Right?
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  Speaker 2: John, We've talked about this lot in the past and
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  Speaker 2: there is no straightforward answer. But let's start by just
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  Speaker 2: explaining how this system works because it has recently changed.
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  Speaker 1: So how does it work now?
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  Speaker 4: Well, I mean, let's see, you have to hear check
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  Speaker 4: what type is student loan you're on, and the types
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  Speaker 4: of student loans are all different between England, Wales, Northern
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  Speaker 4: Ireland and Scotland. But I think for this Particoarus James
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  Speaker 4: is from England, we'll just assume that his kid is
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  Speaker 4: starting UNI this year, and that means they're going into
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  Speaker 4: the Plan five student loan. And what the main difference
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  Speaker 4: there is that while the interest rate is lower, so
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  Speaker 4: it's just RPI.
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  Speaker 2: And it used to be RPI plus three percentage point
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  Speaker 2: now it's API.
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  Speaker 4: But the previous loan was written off after thirty years
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  Speaker 4: and this one isn't written off for forty years. So
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  Speaker 4: and also it's your.
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  Speaker 2: Whole working life pretty much now, where you're not going
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  Speaker 2: to be buying that back at the end.
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  Speaker 4: Of your work exactly, unless you unless you never earned
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  Speaker 4: more than twenty five thousand pounds a year. And actually
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  Speaker 4: the starting rate has gone down as well from the
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  Speaker 4: previous loan. Previous loans about twenty seven thousand to earn
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  Speaker 4: before you have to start paying it back. But basically,
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  Speaker 4: once you start earning twenty five thousand pounds a year,
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  Speaker 4: you pay it off at a rate nine percent on
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  Speaker 4: top of your marginal income tax rate. So basically this
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  Speaker 4: is much closer to their graduate tax than any previous
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  Speaker 4: type of student loan has been. And so yeah, if
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  Speaker 4: you're if you have an average graduate, then they will
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  Speaker 4: lately be paying nine percentage points on top of the
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  Speaker 4: income tax rate for most of their work in life
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  Speaker 4: to pay their sortally.
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  Speaker 2: So one of the things that we should look at
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  Speaker 2: right away is how much you can borrow. Right, So
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  Speaker 2: the average amount that people borrow pretty much everyone can
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  Speaker 2: well everyone can borrow their fees and fifty pounds a year,
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  Speaker 2: right And then depending on your academic year and where
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  Speaker 2: your at university, you get a certain amount for a
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  Speaker 2: maintenance loan and there's a maximum for that. If you're
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  Speaker 2: living away from your parents outside London, which is the
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  Speaker 2: majority of people, I would say the maximum is nine
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  Speaker 2: nine hundred and seventy eight pounds a year, but that
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  Speaker 2: is means tested based.
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  Speaker 1: On your parents' income.
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  Speaker 2: Your parents' income is like I can't remember exactly what
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  Speaker 2: it is, but it's somewhere between sixty and seventy thousand pounds.
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  Speaker 4: Yeah, it's but it's sexty OIDs and it does vary
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  Speaker 4: depend on the one whether you're in London or route
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  Speaker 4: to London or living me a pearance or not.
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  Speaker 2: But yeah, and so if you can only get the minimum,
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  Speaker 2: it's just over four thousand, seven hundred pounds. So for
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  Speaker 2: an overful lot of people that are going to be
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  Speaker 2: looking at that in come wealth absolutely nowhere near enough
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  Speaker 2: to cover my living expenses. So even if you get
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  Speaker 2: your full student loan, you're still going to find yourself
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  Speaker 2: having to look elsewhere for money, having to work all
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  Speaker 2: the way through the holidays, et cetera, if you're self financing.
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  Speaker 2: So for a parent like James, even before we.
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  Speaker 1: Get to should I pay tuition?
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  Speaker 2: Should I pay this four thy seven hundred year of
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  Speaker 2: my child, they're actually going to be contributing quite a
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  Speaker 2: lot already.
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  Speaker 4: Yeah, I think if you realistically, if you want to
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  Speaker 4: pay all of the costs, including the stuff that you
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  Speaker 4: can borrow money for, you're looking at a minimum be
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  Speaker 4: twenty nine a year from your post tax in company.
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  Speaker 4: And that really is a minimum because I mean, well,
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  Speaker 4: I mean more of sorts of just started journey, and
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  Speaker 4: I would say that they're pretty sensible and they also
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  Speaker 4: work them. Say else, I would say that probably the
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  Speaker 4: eleven course and an annual basis are between ten and
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  Speaker 4: twelve grind a year. That's including rent, that's including you know, fun.
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  Speaker 4: You need to think about putting that away for them,
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  Speaker 4: as well as the two hundred and fifty year in
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  Speaker 4: student fees. So yeah, let's call it between twenty and
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  Speaker 4: twenty five grind depending on exactly where they're living and
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  Speaker 4: how much they work them, say elves.
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  Speaker 2: Basically, Yeah, So the question then, or if you want
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  Speaker 2: to look at it in purely financial times, the question
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  Speaker 2: is do you think you will make enough money over
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  Speaker 2: a lifetime such that you will end up owing the
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  Speaker 2: state money hooray you won or you'll end up paying
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  Speaker 2: the whole lot off. And that's the bit that you
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  Speaker 2: simply can't know because you have no idea how much
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  Speaker 2: you're going to earn over a career that I've got
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  Speaker 2: some numbers from aj Bell that show that if you
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  Speaker 2: start on the starting centary about thirty thousand pounds, which
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  Speaker 2: gradually increases over forty years with inflation but extra for
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  Speaker 2: doing well, etc. That would mean you'll end up repaying
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  Speaker 2: tiny bit less than you borrowed.
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  Speaker 1: So that kind of makes sense. Yeah, anything above that,
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  Speaker 1: it doesn't too much make sense.
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  Speaker 4: Well, I suppose. The other thing is I think it's
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  Speaker 4: easy to get stuck on the idea because even if
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  Speaker 4: you have these figures, you just don't know what your
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  Speaker 4: kids are going to earn. You don't know if they
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  Speaker 4: might end up taking career breaks, you don't know if
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  Speaker 4: they might end up marrying a rich husband or wife
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  Speaker 4: and not having to work at all, and so you know,
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  Speaker 4: there are lots of things that can harm. So I
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  Speaker 4: think the main thing you have to think about is
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  Speaker 4: assuming you can even afford this in the first place,
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  Speaker 4: which is something else we should talk about. But you
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  Speaker 4: want to preserve the optionality as much as you can
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  Speaker 4: in this case, which is one reason why I think,
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  Speaker 4: even if you have this money to spare, why not
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  Speaker 4: stick twenty five grand in our bank account locking the
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  Speaker 4: interest rate each year, because now you're going to get
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  Speaker 4: an interest rate that beats RPI, tax John tax, yeah,
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  Speaker 4: and all taxes.
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  Speaker 2: That interest is tax. So you might put it in
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  Speaker 2: a bank account, get more than RBI by one percentage
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  Speaker 2: point or so, but you're still going to lose it
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  Speaker 2: in tax, so that doesn't well.
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  Speaker 4: You can I don't know what inflation with it is now.
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  Speaker 4: Especially RPI right now is under two percent. RPI is
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  Speaker 4: weirdly lower than CPI. If you could lock in a
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  Speaker 4: five percent interest rate, which you probably can at the moment,
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  Speaker 4: then you're still going to keep up with the loan
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  Speaker 4: in real terms. Or you could go for a small
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  Speaker 4: coup point gilt that's a wee bet and that's a
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  Speaker 4: bit federally.
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  Speaker 2: That's possible, and then you don't have that problem. Okay,
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  Speaker 2: but that just takes care of the providing optionality during
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  Speaker 2: the university period when you keep it in catch. And
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  Speaker 2: the other question is what are the other things that
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  Speaker 2: you could do with that money? And we always say
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  Speaker 2: don't be the one of the greatest things a parent
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  Speaker 2: can do for a child. The greatest gift you can
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  Speaker 2: give your child is your own financial security.
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  Speaker 1: You know, don't looking.
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  Speaker 2: Don't be going to them looking for money when you're old, right,
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  Speaker 2: So if you can take that money in over three years,
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  Speaker 2: we're twaleking sixty grand plus pay seventy if you've paid
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  Speaker 2: it all. If you want to put that seventy off
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  Speaker 2: against your mortgage or into your eyes set, into your
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  Speaker 2: SIP or indeed into a set for your own children,
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  Speaker 2: or you can't put that much into a step for
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  Speaker 2: your children, but some etcetera. Would that be more valuable
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  Speaker 2: to you than this confusing dicey difficult to quantify paying
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  Speaker 2: for your children instead of instead of leaving them with
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  Speaker 2: student owns.
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  Speaker 4: Yeah, and I mean the other point about tax you're
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  Speaker 4: just making that I mean, they can stick four ground
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  Speaker 4: a year in a lifetime isser. There your kids then
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  Speaker 4: do own that. You know, that's that's their money, so
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  Speaker 4: you have given it to them. But again you put
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  Speaker 4: forward ground into a lifetime isser that gets instantly raised
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  Speaker 4: to five grand. So I do think those sensible things
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  Speaker 4: to do rather than like, basically, I think there's a
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  Speaker 4: case to be said for always taking the low end
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  Speaker 4: and using other ways to offset against the loans and
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  Speaker 4: then can sell on what to do whenever they graduate.
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  Speaker 2: And the only thing I would say about that, I
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  Speaker 2: get think about it after they've graduated to see how
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  Speaker 2: it works out, et cetera. But I look at the
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  Speaker 2: amount of tax that our young people take and I
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  Speaker 2: add the student loan to that, and this is something
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  Speaker 2: that we never had to experience. So let's say you
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  Speaker 2: go into your first job.
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  Speaker 1: And you're earning in the high twenties. Weld on you.
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  Speaker 2: By the way, if you're paying your twenty percent, you're
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  Speaker 2: paying your national assurance, then you're paying this nine percentage
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  Speaker 2: points and then you probably are and we'll get to
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  Speaker 2: this in another podcast, but you should be paying a
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  Speaker 2: three percent pension. Now your effective marginal rage of tax
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  Speaker 2: in your first job is well over forty percent, and
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  Speaker 2: that is a can you save your children from that?
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  Speaker 1: Are you rich enough to save your children from that?
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  Speaker 4: You have to quit a lot of money to save
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  Speaker 4: your kids from that? And yeah, I mean, psycholog it's
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  Speaker 4: a lot of ballast. And also I mean and also
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  Speaker 4: just sortry one thing we haven't touched on. But although
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  Speaker 4: this doesn't affect your credit worthiness and your credit rating,
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  Speaker 4: obviously it affects the amount you can actually borrow for
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  Speaker 4: a mortgage or pay for rent because you're getting you're
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  Speaker 4: getting charged an extra nine percent on top of your
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  Speaker 4: tax rate. So if you have the wherewithal to pay
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  Speaker 4: it off, then you can argue about the mechanics of
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  Speaker 4: paying it off, but it's probably worth doing. It just
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  Speaker 4: boils down to that risky weather. It ends up being
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  Speaker 4: actually that was a dubs a waste of money because
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  Speaker 4: I wouldn't have I had to pay it off because
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  Speaker 4: for some reason, they don't earn as much as you
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  Speaker 4: expect them to earn over their lifetime. But I do
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  Speaker 4: think the psychological element is important. But again, you know,
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  Speaker 4: the other thing I would say is, you know, maybe
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  Speaker 4: they would rather that you did have that if you
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  Speaker 4: had seventy five thousand pounds safe over the course of
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  Speaker 4: the university career. Maybe they'd rather put down a deposit
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  Speaker 4: in the house for that money and kind of stomach
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  Speaker 4: the nine percent and penalty.
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  Speaker 1: Look at you wanting to give the young choices.
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  Speaker 4: Yeah, I think it's a really checky one.
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  Speaker 2: I mean, there's one more thing we should say before
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  Speaker 2: we close this, which is that I don't think enough
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  Speaker 2: students take advantage of the other types of finance on offer.
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  Speaker 2: So there are loads of scholarships on offer, there are
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  Speaker 2: lots of bursaries on offer. And the other thing that
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  Speaker 2: I think people don't know quite enough about is the
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  Speaker 2: grant system. There are too many charities in the UK,
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  Speaker 2: way too many charities doing too many things. And that's
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  Speaker 2: another podcast we will come to it again. But nonetheless
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  Speaker 2: those charities exist. They offer all kinds of grants so
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  Speaker 2: you can go to your university, you know, if you're
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  Speaker 2: particularly good at any sport, if youre particularly academic, if
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  Speaker 2: there's all sorts of things. Is that there's a list
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  Speaker 2: on the UNI guide website. If you're from a particularly country,
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  Speaker 2: if you're the first person in your family to go
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  Speaker 2: to university, you're a passionate about a certain industry, whatever
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  Speaker 2: it is. There are all sorts of reasons you might
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  Speaker 2: be able to get a grant or a scholarship or
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  Speaker 2: a bursary from the university. And then there is a
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  Speaker 2: brilliant website that I was having a quick look at earlier,
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  Speaker 2: called to turn to Us. It's also worth noting that
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  Speaker 2: the governments give grants to people in various things a
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  Speaker 2: social work, as doctor's dentists. If you're studying for any
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  Speaker 2: of those, you may be able to get a government grant,
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  Speaker 2: and there are websites that will help you look for
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  Speaker 2: grants for all sorts of other things as well, so
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  Speaker 2: that is definitely worth doing.
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  Speaker 4: Basically, this has made the course of union much more
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  Speaker 4: pertinent and salient in people's minds, and I think it
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  Speaker 4: is worth consider on. You know, is this actually the
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  Speaker 4: best route. If you already have a strong idea what
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  Speaker 4: you want to do, then maybe an apprenticeship is better.
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  Speaker 4: I was looking at apprenticeships recently, and if you want
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  Speaker 4: to be an accountant, for example, and some people do,
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  Speaker 4: then you know you can get very good accountancy apprenticeships
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  Speaker 4: you just you know you're doing. Basically, it's like getting
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  Speaker 4: paid to go to UNI and by the time you're done,
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  Speaker 4: then you're far ahead of the actual graduates because you've
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  Speaker 4: worked the company, you know, maybe it's anston young something
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  Speaker 4: like that, and you've been there for long enough that
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  Speaker 4: you're already embeddied and you're managing people your age who
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  Speaker 4: are just coming out of UNI. So I do think
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  Speaker 4: that if you've got a fun idea what you want
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  Speaker 4: to do, and you're not worried about being somewhat locked
• 12:05
  Speaker 4: down your past, and an apprenticeship is a very good
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  Speaker 4: option potentially.
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  Speaker 1: Although you may be prepared to miss out on the parties.
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  Speaker 4: Honestly, how many parties can you go to? And if
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  Speaker 4: you get this a my student debt hanging over you,
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  Speaker 4: and then this is why young people today are so
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  Speaker 4: much more sober than we will.
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  Speaker 1: Can't afford anything.
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  Speaker 2: No, I agree, this is another podcast altogether, but I
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  Speaker 2: do think that having the student debt and the pension
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  Speaker 2: payments hanging over them is something that is having a
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  Speaker 2: major effect on younger people today.
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  Speaker 1: But that's another podcast. Thank you, John, Thank you.
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  Speaker 2: So, as you can tell from our discussion, there is
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  Speaker 2: no actual answer here. It depends on your own personal
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  Speaker 2: financial situation. It depends on your priorities. It depends on
• 12:45
  Speaker 2: the degree your child is doing, It depends on their
• 12:47
  Speaker 2: job prospects later.
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  Speaker 1: There's an awful lot.
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  Speaker 2: Of things to bring into consideration here. We can't give
• 12:52
  Speaker 2: you an absolute answer, but I hope that we've pointed
• 12:55
  Speaker 2: you towards some of the things you should think about.
• 13:00
  Speaker 2: Thanks for listening to this week's Marron Talks Your Money.
• 13:02
  Speaker 2: Be sure to rate, review, and subscribe wherever you listen
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• 13:10
  Speaker 2: John Underscore Steppeck for John, and keep sending questions or
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  Speaker 2: comments to Merrior Money at Bloomberg dot net. This episode
• 13:15
  Speaker 2: was hosted by me Meren Thumbset Web and John Steppeck.
• 13:18
  Speaker 2: It was produced by Summersadian Isabella Award Production Support and
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  Speaker 2: sound designed by Moses and