Student loans and your child’s university education

The topic of student loans has been a controversial one of late, especially with plans set to come into place from September whereby prospective students will see the current grant they would normally receive be replaced by a student loan. Understandably, it has caused tremendous outrage across the board, with many believing that university education is becoming increasingly unaffordable. Certainly, as parents, it’s a growing trend which is cause for much concern, and many of us justifiably worry about the level of support we can expect from Government when the time comes for our children to make the leap into tertiary education.

Discerning the facts

It’s important to keep our wits about things though, and not fall foul to the hysteria too much. Bear in mind that full-time students don’t have to pay a penny back of their student loan until at least the April after they graduate. And even then, he or she pays just 9 per cent of anything earned over and above £21,000. If they earn less, they don’t pay. What’s more, after 30 years, any outstanding debt is scrapped. The system is at least fair at its core, and the loan itself is more akin to a tax in that the amount you repay is linked to income. There are tools out there that will allow you to calculate how much you still owe on your loan, which may be of interest. There are also firms in the US that offer such services to American students who need a loan. This works slightly differently than the loans in the UK, but you can still receive a loan to fund your education. If you were to opt for a student loan in the US, you can easily investigate both how much and when your student loan repayments will be using a similar tool to the one found at SoFi.

But what is a bit more alarming is the fact that this threshold of £21,000 was meant to rise each year, but last year the Government retrospectively froze this figure for all students who started after 2012, which effectively equates to a hike in repayments. Such inclination to just arbitrarily change the rules is what is a bit unsettling, and makes us as parents inclined to take things into our own hands to ensure that any curved balls in the future don’t jeopardise our kids being able to afford a university education.

The pitfalls of money struggles

Part of the student loan is a component for maintenance and living costs, which varies depending on location (outside or inside London), and whether the student is living at home. These amounts are clearly not always sufficient though. Many students work in order to supplement this, but for those with gruelling time tables with no time to serve cappuccinos, the financial hurdle can present enormous difficulties.

In need of short-term solutions, students are increasingly turning to things like gambling and payday lending. In fact, a recent study showed that in London alone, the number of students in debt to payday companies is more than double the national average. Such decisions can be destructive both in the short and long term, and it is thus important that we educate our children on such things from a young age.

How to get on top of the conundrum

Of course, that’s not to say that borrowing itself is a poor idea. There are plenty of personal loan providers out there which offer affordable and sensible loans in order to fund any shortfalls of money. But of course these are linked to credit history, which may mean that you as a parent will need to take out the finance yourself on your child’s behalf; if or when the time comes.

Prize number one though is obviously to not have to go down the route of credit or loans at all. Easier said than done, given that the average cost of three years of study (all things considered) in England is estimated to be in the region of £60,000. But the best way to plan ahead is simply good old-fashioned saving, and starting early.

But this is something you should be doing as a family, and, in particular, in collaboration with your child. Get them to start saving too, and teach them the art of budgeting. After all, if it is their dream to go to university, funding it should be something they have a vested interest in, rather than purely being a handout from Mum and Dad. It need not be authoritarian as such, but you can make it fun by setting each other savings targets, and seeing who does best.

It’s all part of ingraining good habits in our children, which will serve them well at university and beyond. Certainly there are other routes to building a great future without university, and it isn’t the be all and end all it is sometimes made out to be. But if you suspect it is a dream for your child, the benefits of planning ahead really will reap rewards. You really can’t start early enough, but when the day finally does come to wave them off to campus, you can then be safe in the knowledge that their new adventure won’t have the added pressure of any significant financial burdens.

This is a collaborative post

2 thoughts on “Student loans and your child’s university education

  1. What worries me the most is that university education is already unaffordable… What on earth is it going to be like in 15 years time when R may (or may not) want to go?! I am already saving for her and for her brother, but I won’t be able to pay for all of the cost of myself! Xx

  2. UK and EU students need to reapply for their student loan for each year of their studies. Applications usually open around Easter. Continuing students who do not have their applications automatically processed will be contacted and asked to apply online.

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