Uni Tuition Fees: Pay upfront or get a loan??

Hi everyone,

I'm still unsure as to whether it's better to pay the tuition fees (3 year course) upfront, or to get a student loan, and I don't completely understand the repayment system - the more you earn the more you pay back?

Any help would be much appreciated. Thank you

Reply 1

Manitude

If you have the means to pay it up front then by all means go for it as you'll pay less in the long run. If you decide to get a loan then you pay nothing if you earn £21k or less and then you pay 9% of whatever you earn above that. But, keep in mind that there is an interest rate of around 1.5% (currently, it may well go up) which is about the same as what you would get in a typical ISA if you decided to save the money rather than spend it.

Assuming you do a three year degree with fees of £9k plus maintenance loan of £4k (I think it's a bit less than that, but I'm rounded for convenience), you'll end up borrowing £39k in total. Interest works out at £585/year (ignoring that you get a year interest free, I think) after you graduate.
To pay off that amount of interest you need to earn £6500 above the threshold, that is, you have to earn £26,500 from the moment the interest starts being added just to stop the amount you owe increasing, let alone actually paying it off. Unless you're looking at earning that kind of money you will pretty much have to accept that you won't pay it off. You can make additional contributions as and when you choose, but SLC are so incompetent they'd probably 'lose' the money.

It's up to you of course, but if I was in your position and had the money now I'd be paying at least some of the fees up front.

Reply 2

Mackay

Get a loan. You won't pay it all back anyway.

Reply 3

Comeback

Why would you pay upfront?! If you have that kind of money to hand use it for important things e.g. saving for a mortgage deposit.

There will be loans you may need in life that won't ask you to stop paying if you lose your job, or something.

Reply 4

minimarshmallow

Moved to Student Financial Support.

Reply 5

Tiger Rag

I personally take the loan. That being said, I am going to be paying for my first module's tutition myself.

Reply 6

bahonsi

Take the loan you never pay back everything and the money will come in handy.

Reply 7

balotelli12

Original post by Manitude

An apparently knowledgeable response but wrong in a major point.

The interest rate since 2012 for new students is a lot more. Whilst studying it is currently about 5.5% and after you finish varies.

See moneysavingexpert.com for a thorough explanation.

Reply 8

Manitude

Original post by balotelli12

Very well, it appears I misunderstood this page then:
http://www.slc.co.uk/services/interest-rates.aspx

If anything this supports my closing comment more. A back of the envelope calculation suggests that instead of needing to earn £26,500 to keep on top of interest you'd need to earn £44,800 if an interest rate of 5.5% instead of 1.5% is used. I can't imagine many graduates earn that kind of money. And that's just to stop the amount you owe increasing.

Alternatively, the OP may like to consider the possibility that they will never pay the full amount pack if they get a loan which could well mean they save money.

(edited 9 years ago)

Reply 9

MrBowcat

Original post by Manitude

So, say an individual expects a starting salary of around 30-40k, the best option would be to pay upfront?

Posted from TSR Mobile

Reply 10

bahonsi

Original post by MrBowcat

So, say an individual expects a starting salary of around 30-40k, the best option would be to pay upfront?

Posted from TSR Mobile

Not exactly, after 30 years the debt is wiped clean and with inflation and interest rates one will never fully repay that student loan.

Reply 11

Manitude

Original post by MrBowcat

So, say an individual expects a starting salary of around 30-40k, the best option would be to pay upfront?

Posted from TSR Mobile

I'm not sure I'm the person to ask on this. It would depend on how your wage would increase over the course of your career.

You may want to check this calculator:
http://www.studentfinance.direct.gov.uk/scheme/dgv/pws/repayment-calculator.html
Ultimately it seems you'd end up paying pack twice as much as you borrowed. But you have to consider that the value of a pound in 30 years time will (probably) be a lot less than it is now so really you're betting on what the inflation rate will do in the future. That's definitely not something I'm prepared to comment on with any authority.

Reply 12

MrBowcat

Original post by Manitude

Lets say a person starts earning near 6 figures within 5-6 years of graduating, then would taking a loan be the worse option?

Reply 13

Klix88

Original post by MrBowcat

Lets say a person starts earning near 6 figures within 5-6 years of graduating, then would taking a loan be the worse option?

If you earn nearly £100,000 so soon after graduating, the loan repayments will be pocket money unless you develop some very expensive habits/tastes. I doubt it would make a difference either way in that situation.

Reply 14

Manitude

Original post by MrBowcat

Lets say a person starts earning near 6 figures within 5-6 years of graduating, then would taking a loan be the worse option?

If you're earning that kind of money then as the other poster said, it wouldn't really matter. You'd be able to afford to pay it off early. If you did the minimum repayment then it would still take a long time to pay off and the interest that builds up may end up costing you more in the long run.

You may wish to consider paying some upfront and getting some loan to cover yourself both ways.

Reply 15

balotelli12

Nobody knows what the future holds.

I suspect you'd feel a right chump having paid off your student loan you lost your job, had a serous accident or medical condition that severely affected your earning potential.