Should you pay your child's university fees?

Students face enormous tuition fee costs in the pursuit of a degree-level education in England and Wales (and non-Scottish-resident students studying north of the border).

The current maximum a university can charge for tuition is £9,250 a year. This means a standard three-year degree course will leave a student taking a loan with £27,750 of debt when they graduate.

And this doesn’t include the interest that will then accrue (currently 4.3% on Plan 5 loans), or the maintenance loans that they will potentially use to fund their university life.

The average student who began their degree in the academic year 2022/23 will graduate with £45,600 of debt according to Parliament research.

This being said, there are some really important considerations to take into account with regards to student loans, how they are paid, and how the ‘debt’ functions.

So, before you decide to pay for your child (or grandchild’s) tuition fees, here’s how they work.

Debt but not debt

When it comes to repaying the student debt, there are a number of rules in place that dictate how much, and how long, they have to repay.

The latest series of loans, so called “Plan 5” requires repayment above £25,000 a year in income, £2,083 a month or £480 a week. The student will have to begin repaying once they earn this much money.

In terms of how much – it will be deducted automatically by their employer at a rate of 9% of their pre-tax earnings. For anyone who chooses self-employment, they will need to file a self-assessment tax return and will have to pay student loan repayments alongside their annual tax bill.

Now, at this point it is really important to understand that student debt doesn’t work like normal debt such as a mortgage or a credit card. You can owe £30,000 or £3 million – but you will only ever pay 9% of your income each year toward repayments.

The debt owed will be cancelled if it is left unpaid 30 years after the first April after the date of graduation. For this reason, student debt doesn’t actually work like debt – it is in fact more akin to a 9% income tax additional charge paid over 30 years, or once the full amount is repaid.

For this reason the student loans system is actually quite ‘progressive’ in taxation terms. For instance – someone who goes on to earn a relatively modest annual income in their career will likely never repay the full amount. But someone who goes into a high-paying career such as financial services, medicine or law, where £100,000+ salaries are not unusual, will pay back much more and likely pay their entire balance.

So should I pay up or not?

The question, ultimately, of whether you should pay your child’s tuition fees or not comes down to whether you want them to have better earnings once they start work.

To put that into context, someone earning £30,000 a year will pay just £32 a month - £384 a year - in student loan repayments. Someone on £50,000 will pay £182 a month or £2,184 a year.

Oddly enough if you expect your child to become a higher earner (which can be deduced by what degree they opt for) then it can be more worthwhile in terms of helping their income levels in the medium term.

When it comes to major life decisions such as getting a mortgage and buying a home, lenders will consider student debt – but only to the extent that they look at how much income is spent on it each month, rather than the net level of the debt.

No one will ever chase a graduate for their debt if it goes unpaid – it simply doesn’t function in the same way as normal debt in that sense.

Ultimately, it is for you to decide if your own finances can cope with the strain of paying upfront for tuition fees, or whether that money can be better spent elsewhere – or saved and invested for your long-term future (and subsequently, your children’s too).