How Parents can decide whether to use savings to reduce their student's borrowing

 

So Taylor Swift made one prospective student's dream come true with a generous donation to support her studies.

Stories about students like this are very rare. What isn't rare though is Parents, Partners, Friends and Family wondering whether or not to donate their savings. to their student in order to reduce the amount of student loan they have to take out. 

Even the student may have savings and are wondering whether to reduce their student loan borrowing.

This can feel like a tough decision and it can be hard to make a proper informed choice. 

Your Reason to help….	Ask yourself….	Explore……
Less Debt - It will reduce how much my student will have to borrow and pay back.	Is this true? Do you have sufficient savings to mean they don’t have to take on any student loan? Does the funder expect you to contribute anyway to your student's living costs? (If the students depends on you financially and your household income is above £25K the answer to this is likely to be yes). Can your savings cover the full fees charged and living costs for the whole undergraduate course and any further study?	Can the savings help more effectively in other ways apart from reducing borrowing, for example ·         Helping with day to day costs ·         Help with rent ·         Help save for beyond graduation
Less Debt – if I pay the fees he/she/they will owe less money and pay back less.	Is this true? Does the funder expect you to contribute anyway to your student's living costs? (If the students depends on you financially and your household income is above £25K the answer to this is likely to be yes).	Can the savings help more effectively in other ways apart from reducing borrowing, for example ·         Helping with day to day costs ·         Help with rent ·         Help student save for beyond graduation
Want to Help – I have saved up for the day my student goes to university for years, I want them to borrow less student loan.	Is this wise? Is this the best use of your capital? Does the funder expect you to contribute anyway to your student's living costs? (If the students depends on you financially and your household income is above £25K the answer to this is likely to be yes). Can your savings cover the full fees charged and living costs for the whole undergraduate course and any further study?	Can the savings help more effectively in other ways apart from reducing borrowing, for example ·         Helping with day to day costs ·         Help with rent ·         Help save for beyond graduation
Sacrifice – I need my savings myself but feel I should sacrifice them as it seems wrong for my student to borrow so much and be burdened with debt.	Is this wise? What might happen if you need your cash reserves? Does the funder expect you to contribute anyway to your student's living costs? (If the students depends on you financially and your household income is above £25K the answer to this is likely to be yes). Can your savings cover the full fees charged and living costs for the whole undergraduate course and any further study?	Can the savings help more effectively in other ways apart from reducing borrowing, for example ·         Helping with day to day costs ·         Help with rent ·         Help student save for beyond graduation, for example by helping them open Life-Time ISA
Well off – I have plenty of money saved so I am not worried about using it	Do you need your savings yourself? Does the funder expect you to contribute anyway to your student's living costs? (If the students depends on you financially and your household income is above £25K the answer to this is likely to be yes). Can your savings cover the full fees charged and living costs for the whole undergraduate course and any further study?	Can the savings help more effectively in other ways apart from reducing borrowing, for example ·         Helping with day to day costs ·         Help with rent ·         Help save for beyond graduation
Play with the repayment calculator here on Money Saving Expert  see how much a student’s repayments are altered by borrowing less

One thing that is true is that if you use your savings that money will be gone.

If a student takes the Tuition Fee Loan and the Maintenance Loan to pay for their tuition and living costs then while how much they borrow may be a set amount, how much they pay back is not.

Repayment of government Student Loans for students from England Wales taken out since September 2012 is Income Contingent…..this means it depends on how much the graduate student earns from the time they become eligible to repay. It does not depend on how much they have borrowed.

Use the Money Saving Expert Calculator to test your assumptions that by reducing a student’s borrowing means they will pay less back to the government.

Try changing the amount of the fee loan and/or living cost loan borrowed.

Play with the assumptions about beyond graduation earnings.

Would a lump sum from you alter what the student might pay back over the term of the loan?

This may help you decide how best to utilise your hard earned savings.

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From a Parent to a Parent and Bank(-rupt) of Mum and Dad