Since tuition fees trebled in 2012 students have been graduating with loans averaging £50,000 if maintenance costs are included.
If you’re a parent in the position to help your child with their financial situation, helping them pay off their student loan is an attractive option. But, is it the best option?
The Mail on Sunday’s calculations show that someone who starts on a £25,000 annual salary which rises by 3% a year will never clear their debt on their own, even 30 years after the April following their graduation – when the Government wipes it out. This means it does not make sense for them to pay off the loan upfront.
On the other end of the spectrum, “A high-flyer who lands a £45,000 starting salary would, in our scenario, be earning £106,000 after 30 years.” – This is Money. After 30 years, your high-earning child will still owe £30,783 – which would be wiped out. But they would have paid £75,180 more than they borrowed. Suter says: ‘They would have been better off paying off the loan upfront.’
Generally speaking if your child is going to have an average starting income, you could consider using the money you have available to help them with a property deposit instead.
Do you want to figure out the best way to help your children financially? Do get in touch and we’ll do what we can to help.