Issue 62 October 2017 Village Eye
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y Mark Penston<br />
Student Finance...<br />
The Bank of Mum & Dad<br />
Now that the summer<br />
is over and the kids<br />
go back to school or<br />
university, life returns<br />
to ‘normal’. Time to<br />
return to that list of<br />
‘to-do’s’ (maybe sorting<br />
your finances out!)<br />
Our son starts his second<br />
year of university soon and<br />
once again his finances and<br />
student loan are discussed.<br />
This year the student loan<br />
interest rate goes up to<br />
6.1% (3% above the March<br />
17 RPI rate of 3.1%). This is<br />
considerably higher than our<br />
mortgage rate and indeed<br />
even a bank personal loan<br />
rate.<br />
Once interest free, student<br />
loans have gradually notched<br />
up and being pegged to<br />
inflation could give some eye<br />
watering interest rates if RPI<br />
increases again.<br />
Some friends of ours<br />
discussed adding their<br />
son’s student loan to their<br />
mortgage - something we had<br />
considered as, on the face<br />
of it, it would save money. It<br />
would however mean that<br />
our mortgage would now<br />
run on in to our retirement<br />
and with number 2 child due<br />
to go to university soon,<br />
we could easily ramp up an<br />
additional mortgage debt of<br />
over £100,000. The matter of<br />
how we would get our children<br />
to repay this and over what<br />
time conjures up all manner<br />
of scenarios, many of which I<br />
don’t like the sound of!<br />
Many financial commentators<br />
have concluded that, despite<br />
the high interest rate, student<br />
loans are the best way<br />
forward as in a reasonable<br />
proportion of cases the loans<br />
are never fully repaid before<br />
the 30 year date when they<br />
are wiped out. In effect, this<br />
would make the loan cheaper.<br />
Some comment that the<br />
loan repayments (which are<br />
deducted from the student’s<br />
salary when they earn over<br />
£21,000 p.a.) are a form of<br />
tax. A tax for the privilege of<br />
going to university perhaps?<br />
Maybe this should focus the<br />
mind on whether going to<br />
university makes economic<br />
sense. Going to university<br />
for the experience is all well<br />
and good if it helps with<br />
a vocation that wouldn’t<br />
otherwise be possible<br />
through apprenticeships or<br />
other avenues.<br />
For those who have yet to<br />
experience the conundrum<br />
of financing student loans,<br />
maybe some prior financial<br />
planning would assist in<br />
softening the burden.<br />
Mark Penston<br />
is Partner and<br />
Chartered<br />
Financial<br />
Planner with<br />
Bluesky<br />
Chartered<br />
Financial<br />
Planners<br />
Mark<br />
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16<br />
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<strong>Issue</strong> <strong>62</strong> <strong>October</strong> D <strong>2017</strong>(Paul).indd 16 19/09/<strong>2017</strong> 17:31
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