WEBVTT - Should You Pay Your Child’s University Fees?

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to MEREN Talks Your Money, the personal finance edition

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<v Speaker 2>of MEREN Talks Money. In these bonus podcasts, we talk

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<v Speaker 2>about the best strategies for making the most of your money.

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<v Speaker 2>I'm MEREN, Sumset Web and with me senior reporter and

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<v Speaker 2>Money Distilled author John Steppegg Hi John, Hey mil So.

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<v Speaker 2>This week we're answering a question from James.

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<v Speaker 3>James asked should I attempt to pay my child's university

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<v Speaker 3>fees and living costs, assuming I can just about afford

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<v Speaker 3>to do so? Or do I encourage my child to

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<v Speaker 3>max out the available student loans and only make repayments

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<v Speaker 3>when absolutely necessary?

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<v Speaker 1>Right?

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<v Speaker 2>John, We've talked about this lot in the past and

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<v Speaker 2>there is no straightforward answer. But let's start by just

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<v Speaker 2>explaining how this system works because it has recently changed.

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<v Speaker 1>So how does it work now?

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<v Speaker 4>Well, I mean, let's see, you have to hear check

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<v Speaker 4>what type is student loan you're on, and the types

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<v Speaker 4>of student loans are all different between England, Wales, Northern

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<v Speaker 4>Ireland and Scotland. But I think for this Particoarus James

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<v Speaker 4>is from England, we'll just assume that his kid is

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<v Speaker 4>starting UNI this year, and that means they're going into

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<v Speaker 4>the Plan five student loan. And what the main difference

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<v Speaker 4>there is that while the interest rate is lower, so

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<v Speaker 4>it's just RPI.

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<v Speaker 2>And it used to be RPI plus three percentage point

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<v Speaker 2>now it's API.

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<v Speaker 4>But the previous loan was written off after thirty years

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<v Speaker 4>and this one isn't written off for forty years. So

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<v Speaker 4>and also it's your.

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<v Speaker 2>Whole working life pretty much now, where you're not going

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<v Speaker 2>to be buying that back at the end.

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<v Speaker 4>Of your work exactly, unless you unless you never earned

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<v Speaker 4>more than twenty five thousand pounds a year. And actually

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<v Speaker 4>the starting rate has gone down as well from the

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<v Speaker 4>previous loan. Previous loans about twenty seven thousand to earn

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<v Speaker 4>before you have to start paying it back. But basically,

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<v Speaker 4>once you start earning twenty five thousand pounds a year,

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<v Speaker 4>you pay it off at a rate nine percent on

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<v Speaker 4>top of your marginal income tax rate. So basically this

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<v Speaker 4>is much closer to their graduate tax than any previous

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<v Speaker 4>type of student loan has been. And so yeah, if

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<v Speaker 4>you're if you have an average graduate, then they will

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<v Speaker 4>lately be paying nine percentage points on top of the

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<v Speaker 4>income tax rate for most of their work in life

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<v Speaker 4>to pay their sortally.

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<v Speaker 2>So one of the things that we should look at

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<v Speaker 2>right away is how much you can borrow. Right, So

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<v Speaker 2>the average amount that people borrow pretty much everyone can

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<v Speaker 2>well everyone can borrow their fees and fifty pounds a year,

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<v Speaker 2>right And then depending on your academic year and where

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<v Speaker 2>your at university, you get a certain amount for a

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<v Speaker 2>maintenance loan and there's a maximum for that. If you're

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<v Speaker 2>living away from your parents outside London, which is the

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<v Speaker 2>majority of people, I would say the maximum is nine

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<v Speaker 2>nine hundred and seventy eight pounds a year, but that

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<v Speaker 2>is means tested based.

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<v Speaker 1>On your parents' income.

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<v Speaker 2>Your parents' income is like I can't remember exactly what

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<v Speaker 2>it is, but it's somewhere between sixty and seventy thousand pounds.

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<v Speaker 4>Yeah, it's but it's sexty OIDs and it does vary

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<v Speaker 4>depend on the one whether you're in London or route

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<v Speaker 4>to London or living me a pearance or not.

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<v Speaker 2>But yeah, and so if you can only get the minimum,

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<v Speaker 2>it's just over four thousand, seven hundred pounds. So for

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<v Speaker 2>an overful lot of people that are going to be

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<v Speaker 2>looking at that in come wealth absolutely nowhere near enough

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<v Speaker 2>to cover my living expenses. So even if you get

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<v Speaker 2>your full student loan, you're still going to find yourself

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<v Speaker 2>having to look elsewhere for money, having to work all

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<v Speaker 2>the way through the holidays, et cetera, if you're self financing.

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<v Speaker 2>So for a parent like James, even before we.

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<v Speaker 1>Get to should I pay tuition?

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<v Speaker 2>Should I pay this four thy seven hundred year of

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<v Speaker 2>my child, they're actually going to be contributing quite a

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<v Speaker 2>lot already.

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<v Speaker 4>Yeah, I think if you realistically, if you want to

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<v Speaker 4>pay all of the costs, including the stuff that you

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<v Speaker 4>can borrow money for, you're looking at a minimum be

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<v Speaker 4>twenty nine a year from your post tax in company.

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<v Speaker 4>And that really is a minimum because I mean, well,

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<v Speaker 4>I mean more of sorts of just started journey, and

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<v Speaker 4>I would say that they're pretty sensible and they also

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<v Speaker 4>work them. Say else, I would say that probably the

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<v Speaker 4>eleven course and an annual basis are between ten and

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<v Speaker 4>twelve grind a year. That's including rent, that's including you know, fun.

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<v Speaker 4>You need to think about putting that away for them,

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<v Speaker 4>as well as the two hundred and fifty year in

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<v Speaker 4>student fees. So yeah, let's call it between twenty and

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<v Speaker 4>twenty five grind depending on exactly where they're living and

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<v Speaker 4>how much they work them, say elves.

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<v Speaker 2>Basically, Yeah, So the question then, or if you want

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<v Speaker 2>to look at it in purely financial times, the question

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<v Speaker 2>is do you think you will make enough money over

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<v Speaker 2>a lifetime such that you will end up owing the

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<v Speaker 2>state money hooray you won or you'll end up paying

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<v Speaker 2>the whole lot off. And that's the bit that you

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<v Speaker 2>simply can't know because you have no idea how much

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<v Speaker 2>you're going to earn over a career that I've got

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<v Speaker 2>some numbers from aj Bell that show that if you

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<v Speaker 2>start on the starting centary about thirty thousand pounds, which

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<v Speaker 2>gradually increases over forty years with inflation but extra for

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<v Speaker 2>doing well, etc. That would mean you'll end up repaying

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<v Speaker 2>tiny bit less than you borrowed.

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<v Speaker 1>So that kind of makes sense. Yeah, anything above that,

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<v Speaker 1>it doesn't too much make sense.

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<v Speaker 4>Well, I suppose. The other thing is I think it's

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<v Speaker 4>easy to get stuck on the idea because even if

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<v Speaker 4>you have these figures, you just don't know what your

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<v Speaker 4>kids are going to earn. You don't know if they

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<v Speaker 4>might end up taking career breaks, you don't know if

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<v Speaker 4>they might end up marrying a rich husband or wife

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<v Speaker 4>and not having to work at all, and so you know,

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<v Speaker 4>there are lots of things that can harm. So I

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<v Speaker 4>think the main thing you have to think about is

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<v Speaker 4>assuming you can even afford this in the first place,

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<v Speaker 4>which is something else we should talk about. But you

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<v Speaker 4>want to preserve the optionality as much as you can

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<v Speaker 4>in this case, which is one reason why I think,

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<v Speaker 4>even if you have this money to spare, why not

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<v Speaker 4>stick twenty five grand in our bank account locking the

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<v Speaker 4>interest rate each year, because now you're going to get

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<v Speaker 4>an interest rate that beats RPI, tax John tax, yeah,

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<v Speaker 4>and all taxes.

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<v Speaker 2>That interest is tax. So you might put it in

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<v Speaker 2>a bank account, get more than RBI by one percentage

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<v Speaker 2>point or so, but you're still going to lose it

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<v Speaker 2>in tax, so that doesn't well.

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<v Speaker 4>You can I don't know what inflation with it is now.

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<v Speaker 4>Especially RPI right now is under two percent. RPI is

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<v Speaker 4>weirdly lower than CPI. If you could lock in a

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<v Speaker 4>five percent interest rate, which you probably can at the moment,

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<v Speaker 4>then you're still going to keep up with the loan

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<v Speaker 4>in real terms. Or you could go for a small

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<v Speaker 4>coup point gilt that's a wee bet and that's a

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<v Speaker 4>bit federally.

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<v Speaker 2>That's possible, and then you don't have that problem. Okay,

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<v Speaker 2>but that just takes care of the providing optionality during

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<v Speaker 2>the university period when you keep it in catch. And

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<v Speaker 2>the other question is what are the other things that

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<v Speaker 2>you could do with that money? And we always say

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<v Speaker 2>don't be the one of the greatest things a parent

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<v Speaker 2>can do for a child. The greatest gift you can

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<v Speaker 2>give your child is your own financial security.

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<v Speaker 1>You know, don't looking.

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<v Speaker 2>Don't be going to them looking for money when you're old, right,

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<v Speaker 2>So if you can take that money in over three years,

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<v Speaker 2>we're twaleking sixty grand plus pay seventy if you've paid

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<v Speaker 2>it all. If you want to put that seventy off

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<v Speaker 2>against your mortgage or into your eyes set, into your

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<v Speaker 2>SIP or indeed into a set for your own children,

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<v Speaker 2>or you can't put that much into a step for

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<v Speaker 2>your children, but some etcetera. Would that be more valuable

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<v Speaker 2>to you than this confusing dicey difficult to quantify paying

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<v Speaker 2>for your children instead of instead of leaving them with

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<v Speaker 2>student owns.

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<v Speaker 4>Yeah, and I mean the other point about tax you're

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<v Speaker 4>just making that I mean, they can stick four ground

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<v Speaker 4>a year in a lifetime isser. There your kids then

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<v Speaker 4>do own that. You know, that's that's their money, so

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<v Speaker 4>you have given it to them. But again you put

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<v Speaker 4>forward ground into a lifetime isser that gets instantly raised

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<v Speaker 4>to five grand. So I do think those sensible things

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<v Speaker 4>to do rather than like, basically, I think there's a

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<v Speaker 4>case to be said for always taking the low end

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<v Speaker 4>and using other ways to offset against the loans and

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<v Speaker 4>then can sell on what to do whenever they graduate.

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<v Speaker 2>And the only thing I would say about that, I

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<v Speaker 2>get think about it after they've graduated to see how

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<v Speaker 2>it works out, et cetera. But I look at the

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<v Speaker 2>amount of tax that our young people take and I

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<v Speaker 2>add the student loan to that, and this is something

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<v Speaker 2>that we never had to experience. So let's say you

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<v Speaker 2>go into your first job.

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<v Speaker 1>And you're earning in the high twenties. Weld on you.

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<v Speaker 2>By the way, if you're paying your twenty percent, you're

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<v Speaker 2>paying your national assurance, then you're paying this nine percentage

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<v Speaker 2>points and then you probably are and we'll get to

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<v Speaker 2>this in another podcast, but you should be paying a

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<v Speaker 2>three percent pension. Now your effective marginal rage of tax

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<v Speaker 2>in your first job is well over forty percent, and

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<v Speaker 2>that is a can you save your children from that?

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<v Speaker 1>Are you rich enough to save your children from that?

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<v Speaker 4>You have to quit a lot of money to save

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<v Speaker 4>your kids from that? And yeah, I mean, psycholog it's

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<v Speaker 4>a lot of ballast. And also I mean and also

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<v Speaker 4>just sortry one thing we haven't touched on. But although

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<v Speaker 4>this doesn't affect your credit worthiness and your credit rating,

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<v Speaker 4>obviously it affects the amount you can actually borrow for

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<v Speaker 4>a mortgage or pay for rent because you're getting you're

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<v Speaker 4>getting charged an extra nine percent on top of your

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<v Speaker 4>tax rate. So if you have the wherewithal to pay

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<v Speaker 4>it off, then you can argue about the mechanics of

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<v Speaker 4>paying it off, but it's probably worth doing. It just

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<v Speaker 4>boils down to that risky weather. It ends up being

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<v Speaker 4>actually that was a dubs a waste of money because

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<v Speaker 4>I wouldn't have I had to pay it off because

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<v Speaker 4>for some reason, they don't earn as much as you

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<v Speaker 4>expect them to earn over their lifetime. But I do

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<v Speaker 4>think the psychological element is important. But again, you know,

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<v Speaker 4>the other thing I would say is, you know, maybe

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<v Speaker 4>they would rather that you did have that if you

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<v Speaker 4>had seventy five thousand pounds safe over the course of

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<v Speaker 4>the university career. Maybe they'd rather put down a deposit

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<v Speaker 4>in the house for that money and kind of stomach

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<v Speaker 4>the nine percent and penalty.

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<v Speaker 1>Look at you wanting to give the young choices.

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<v Speaker 4>Yeah, I think it's a really checky one.

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<v Speaker 2>I mean, there's one more thing we should say before

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<v Speaker 2>we close this, which is that I don't think enough

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<v Speaker 2>students take advantage of the other types of finance on offer.

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<v Speaker 2>So there are loads of scholarships on offer, there are

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<v Speaker 2>lots of bursaries on offer. And the other thing that

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<v Speaker 2>I think people don't know quite enough about is the

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<v Speaker 2>grant system. There are too many charities in the UK,

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<v Speaker 2>way too many charities doing too many things. And that's

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<v Speaker 2>another podcast we will come to it again. But nonetheless

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<v Speaker 2>those charities exist. They offer all kinds of grants so

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<v Speaker 2>you can go to your university, you know, if you're

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<v Speaker 2>particularly good at any sport, if youre particularly academic, if

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<v Speaker 2>there's all sorts of things. Is that there's a list

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<v Speaker 2>on the UNI guide website. If you're from a particularly country,

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<v Speaker 2>if you're the first person in your family to go

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<v Speaker 2>to university, you're a passionate about a certain industry, whatever

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<v Speaker 2>it is. There are all sorts of reasons you might

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<v Speaker 2>be able to get a grant or a scholarship or

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<v Speaker 2>a bursary from the university. And then there is a

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<v Speaker 2>brilliant website that I was having a quick look at earlier,

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<v Speaker 2>called to turn to Us. It's also worth noting that

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<v Speaker 2>the governments give grants to people in various things a

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<v Speaker 2>social work, as doctor's dentists. If you're studying for any

0:11:07.800 --> 0:11:09.560
<v Speaker 2>of those, you may be able to get a government grant,

0:11:09.840 --> 0:11:12.000
<v Speaker 2>and there are websites that will help you look for

0:11:12.040 --> 0:11:13.839
<v Speaker 2>grants for all sorts of other things as well, so

0:11:13.960 --> 0:11:15.960
<v Speaker 2>that is definitely worth doing.

0:11:16.280 --> 0:11:18.640
<v Speaker 4>Basically, this has made the course of union much more

0:11:18.960 --> 0:11:22.080
<v Speaker 4>pertinent and salient in people's minds, and I think it

0:11:22.120 --> 0:11:24.720
<v Speaker 4>is worth consider on. You know, is this actually the

0:11:24.720 --> 0:11:28.199
<v Speaker 4>best route. If you already have a strong idea what

0:11:28.240 --> 0:11:31.079
<v Speaker 4>you want to do, then maybe an apprenticeship is better.

0:11:32.240 --> 0:11:34.679
<v Speaker 4>I was looking at apprenticeships recently, and if you want

0:11:34.720 --> 0:11:37.319
<v Speaker 4>to be an accountant, for example, and some people do,

0:11:37.800 --> 0:11:41.360
<v Speaker 4>then you know you can get very good accountancy apprenticeships

0:11:41.679 --> 0:11:43.680
<v Speaker 4>you just you know you're doing. Basically, it's like getting

0:11:43.679 --> 0:11:46.640
<v Speaker 4>paid to go to UNI and by the time you're done,

0:11:46.760 --> 0:11:50.200
<v Speaker 4>then you're far ahead of the actual graduates because you've

0:11:50.200 --> 0:11:52.640
<v Speaker 4>worked the company, you know, maybe it's anston young something

0:11:52.679 --> 0:11:55.160
<v Speaker 4>like that, and you've been there for long enough that

0:11:55.200 --> 0:11:58.640
<v Speaker 4>you're already embeddied and you're managing people your age who

0:11:58.640 --> 0:12:00.600
<v Speaker 4>are just coming out of UNI. So I do think

0:12:00.600 --> 0:12:03.120
<v Speaker 4>that if you've got a fun idea what you want

0:12:03.160 --> 0:12:05.960
<v Speaker 4>to do, and you're not worried about being somewhat locked

0:12:05.960 --> 0:12:09.920
<v Speaker 4>down your past, and an apprenticeship is a very good

0:12:10.360 --> 0:12:12.040
<v Speaker 4>option potentially.

0:12:11.480 --> 0:12:13.560
<v Speaker 1>Although you may be prepared to miss out on the parties.

0:12:13.840 --> 0:12:15.720
<v Speaker 4>Honestly, how many parties can you go to? And if

0:12:15.720 --> 0:12:17.480
<v Speaker 4>you get this a my student debt hanging over you,

0:12:17.760 --> 0:12:19.520
<v Speaker 4>and then this is why young people today are so

0:12:19.600 --> 0:12:21.120
<v Speaker 4>much more sober than we will.

0:12:22.120 --> 0:12:23.120
<v Speaker 1>Can't afford anything.

0:12:23.800 --> 0:12:25.760
<v Speaker 2>No, I agree, this is another podcast altogether, but I

0:12:26.080 --> 0:12:29.200
<v Speaker 2>do think that having the student debt and the pension

0:12:29.200 --> 0:12:31.640
<v Speaker 2>payments hanging over them is something that is having a

0:12:31.760 --> 0:12:33.480
<v Speaker 2>major effect on younger people today.

0:12:33.600 --> 0:12:36.320
<v Speaker 1>But that's another podcast. Thank you, John, Thank you.

0:12:37.040 --> 0:12:38.920
<v Speaker 2>So, as you can tell from our discussion, there is

0:12:38.960 --> 0:12:42.200
<v Speaker 2>no actual answer here. It depends on your own personal

0:12:42.520 --> 0:12:45.560
<v Speaker 2>financial situation. It depends on your priorities. It depends on

0:12:45.600 --> 0:12:47.480
<v Speaker 2>the degree your child is doing, It depends on their

0:12:47.520 --> 0:12:48.480
<v Speaker 2>job prospects later.

0:12:48.720 --> 0:12:49.680
<v Speaker 1>There's an awful lot.

0:12:49.600 --> 0:12:52.360
<v Speaker 2>Of things to bring into consideration here. We can't give

0:12:52.400 --> 0:12:55.480
<v Speaker 2>you an absolute answer, but I hope that we've pointed

0:12:55.520 --> 0:12:57.600
<v Speaker 2>you towards some of the things you should think about.

0:13:00.000 --> 0:13:02.040
<v Speaker 2>Thanks for listening to this week's Marron Talks Your Money.

0:13:02.200 --> 0:13:04.520
<v Speaker 2>Be sure to rate, review, and subscribe wherever you listen

0:13:04.600 --> 0:13:06.560
<v Speaker 2>to podcasts. Also be sure to follow me in John

0:13:06.600 --> 0:13:10.040
<v Speaker 2>on x or Twitter, at marinessw for me and at

0:13:10.120 --> 0:13:12.800
<v Speaker 2>John Underscore Steppeck for John, and keep sending questions or

0:13:12.800 --> 0:13:15.480
<v Speaker 2>comments to Merrior Money at Bloomberg dot net. This episode

0:13:15.520 --> 0:13:18.520
<v Speaker 2>was hosted by me Meren Thumbset Web and John Steppeck.

0:13:18.679 --> 0:13:21.880
<v Speaker 2>It was produced by Summersadian Isabella Award Production Support and

0:13:21.960 --> 0:13:23.480
<v Speaker 2>sound designed by Moses and