Student loans debate: should you fund your child through university?

Criticism of student loans is on the rise as graduates complain that the debt is making it harder for them to get mortgages and to save for other milestones.

It comes after Money Saving Expert’s Martin Lewis recently clashed with Conservative Party leader Kemi Badenoch over the focus of student loan reforms.

Lewis claims that the frozen repayment threshold is the issue while Badenoch has called for changes to the amount of interest paid.

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Chancellor Rachel Reeves is rumoured to be planning to make changes in her Spring Statement to make the student loans system fairer.

But it raises the question of whether it is fair to encourage students to go to university and potentially lumber them with unmanageable debt in the future.

Many complain that the repayments make it hard to save for a mortgage deposit or other financial aims. Additionally, mortgage lenders may consider student debt levels in affordability calculations.

An alternative is for wealthy parents to fund their child’s education instead.

So how do you decide whether to support your child financially through university or are they better off getting a student loan?

The trouble with student loans

As most parents with university age children will know, further education is expensive.

Tuition fees can cost up to £9,000 per year and that’s before you add the money needed for books, food and rent.

There are tuition fee student loans available and also funding for living expenses known as maintenance loans.

These are available to all households, although the size of maintenance loan depends on your household income and where the student is living.

Government data suggests the average graduate leaves university with debts of £53,000.

On paper it looks like a good deal. The money doesn’t have to be repaid until the April after a child graduates and only once they earn above a certain threshold. The interest rate is 9% of anything above the threshold.

But graduates are being hit with fiscal drag as the thresholds have been frozen.

Critics say this particularly affects those on Plan 2 loans who were at university between 2012 and 2022.

The repayment threshold for those on Plan 2 loans is set to rise from £28,470 per year to £29,385 this April, but will then be frozen at that level until 2030.

Should parents cover their child's university costs?

University will be many young people’s first taste of financial freedom, giving them the chance to learn how to budget and to manage their own finances.

So there is an argument for letting them take out a student loan to manage their own money.

But, if you can afford it, should you support your child and help them avoid building up student debt?

Products such as a Junior ISA could help give them a nest egg to put towards university or you could even purchase a student property to rent out.

Samuel Mather-Holgate, managing director at Mather and Murray Financial, said: “If you’re lucky enough to be able to fund your child’s university education, this is the way to go.

“Allowing them to take student finance is committing them to an effective graduate tax for life. Unless they will earn over £80,000 per year, they are unlikely to ever pay it off. You have to earn over £65,000 to chip away at any capital given the current interest rates. It’s a system that needs addressing or will become a brake on university admissions.”

It is worth considering what your child’s future career aspirations are though, as some may never earn enough to need to pay back the loan.

Dariusz Karpowicz, director at Doncaster-based Albion Financial Advice, said: “High earners often repay far more than they borrowed once interest builds up, so paying fees upfront can save tens of thousands.

“Lower earners may never clear it anyway, making it behave more like a capped contribution. Think careers first, interest rate headlines second.”

The best solution may be a balance between helping with some aspects such as living costs and letting them borrow the rest if needed. But it is important to ensure that any support doesn’t hamper your own financial goals such as pension saving.

Nouran Moustafa, practice principal at Roxton Wealth, said: “Funding university outright is wonderful if it fits within the family’s wider financial plan. But it should never come at the expense of parents’ retirement security or overall stability.

“What matters most is education. A student loan without understanding becomes a silent drag on future finances. With awareness and planning, it becomes simply another structural part of someone’s financial life.

"The decision shouldn’t be driven by fear of interest headlines it should be driven by a long term vision.”