The last thing many parents want is for their children to leave university with a huge student debt hanging over them. We are often asked the question – “Should I pay off my child’s student loan?”
It’s a simple question to ask, but one that has no simple answer and depends on personal circumstances and feelings rather than just plain logic.
The logical part of our discussion leads to consideration of the following points:
- Student loan repayments only start when their child exceeds the earnings threshold (the threshold amount depends on when the loan was taken out).
- They only repay 9% of everything earned over that threshold and the interest rate is low compared to other loans.
- During any time taken as a career break – such as to go travelling or having children – no loan repayments have to be made.
- Some student loans (again depending on when the loan was taken out) are written off after as little as 25 years.
Most students will never pay off their loan; the total debt and interest payable is therefore, in our opinion, irrelevant. Money Savings Expert, Martin Lewis, suggests that people should think of student loan repayments more as a ‘graduate contribution tax’.
Only when we’ve completed our analysis and considered the above points, can we balance the logic with our clients personal feelings and help them come to the right decision.
You should seek personal advice from your Financial Planner before making any significant financial decisions.