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LEBC warns parents to consider student debt carefully PDF Print E-mail
Tuesday, 22 August 2017
National IFA, LEBC warns parents wanting to help their children avoid student debt to consider carefully whether this is a sound financial move. Depending on whether the potential earnings of the graduate or the career breaks they take within 30 years of graduating, parents with funds to proffer might spend them better on things like a deposit for a house or a car.

Kay Ingram, director of public policy at LEBC said “It might be much more cost effective as a parent to pay for other capital items which could cost more to fund as an unsecured loan. Student debt, charged at 3% plus the increase in retail prices (6.1% in total from September) is expensive, compared to most mortgages and secured loans.

“Unlike other loans, any outstanding balance is written off after 30 years. Repayments are based, not on what is needed to repay the total over this time, but on the graduate’s earnings in excess of an income threshold, currently £21,000, with 9% of income in excess of this being deducted from pay to repay the loan. In this respect, the higher interest rate may simply mean that more is written off by the taxpayer over the longer term than is paid back by the graduate, unless they become high earners early in their careers and maintain that for most of the 30 years.” Ingram points out however that a high level of student debt could adversely affect the graduate’s credit rating and make other loans harder to obtain.

“If you are in a lower paid job or intend to stop work in the future, saving for other purposes first, such as a deposit for a home or long term retirement savings may be more beneficial. This leaves the taxpayer with a large bill and university finance looking vulnerable but from the individual point of view paying back a debt that could be written off in the future is a voluntary tax.”
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