Should you pay your children’s university fees or let them take out a student loan?

If you can afford to pay for your children's university education, without jeopardizing other important goals such as retirement you should. This would generally reduce stress for your child, allowing them to focus on their studies. importantly having to pay back student loans may influence your child's career choices. They may feel they have to necessarily choose a high-paying job they don't want. It could also affect their ability to get a mortgage.

In terms of maintenance and living costs , I would however certainly advocate for as modest an allowance as possible meeting only very basic needs. Students should be encouraged to be financially responsible and not overspend at this age.. They should also be encouraged to get part-time jobs to supplement their income.

My opinion often stands on using the money yourself to either give it to them post-university as a house deposit or help them in other ways throughout university. The student loan is not a standard consumer loan and shouldn't be thought of as such.

They have changed up the loan for plan 5 for most of the pressure to land on the student vs the tax payer however this doesn't mean you should automatically pay for their tuition.

The pros of paying off the student loan in full is taking home more net income on your payslip every month once you start earning however if you don't earn more than £25k (plan 5) and £27.3k (plan 2) you wont be paying anything anyway.

The cons are once you've paid off the loan there is no way in getting that money back if your circumstances change and if the student earns below the threshold it wouldn't be deducted anyway.

The student loan is a threshold tax at best, the more you earn the more you are expected to pay to cover the cost of your education.

This story is bang on the money for us, we often find ourselves helping parents with the juggling act of University funding. Our favourite tip is, where suitable finances are suitable, to fund the purchase of a student home with enough bedrooms for other students to share. Then let the child student manage that let for you, while they are living in it, keeping any profit for themself that they make from subletting. It helps teach household responsibilities to the young people and gives them a valuable edge of being an entrepreneur.

If you are sat on cash then paying your child's university expenses could be a good family investment. With current interest rates on student loans at 5.5% (9 June 2023 to 20 July 2023) and looking very likely to climb, you will be hard-pressed to find cash accounts that guarantee that rate of return. Whilst student loans look attractive due to the time they can be repaid over, they are very similar to equity release schemes in that the rolled-up interest can rapidly make even a small debt into a large one if not repaid quickly.
With property prices looking vulnerable at the moment with fewer buyers in the market, now might be a great time to snap up a university home for a bargain. An existing HMO would be an ideal option but even a smaller flat or home with a spare room to let could offer a useful way to augment student finances.