Student Loans

Should Parents be Scared of Student Loans?

As parents we can get worried about everything that our children experience and debt worries can be a really big concern. This means that when faced with the idea that to do a degree, your child will need to get a student loan, many parents can get very concerned. It is natural to worry that your child may be in debt for thirty years and how that will affect them, but the reality of a student loan may not be as scary as it seems.

Firstly, a UK student loan is not really a loan at all. It is set up in a completely different way. Repayments are means tested, so only once a graduate is earning above a certain level will they have to make repayments. This means that if income is low, they will not have to worry about the loan at all. They will also not necessarily have to pay it all off because any remaining money owed after thirty years is written off. The money is also automatically deducted from the tax code of those that are employed and it does not appear on their credit record and is not looked at as a factor when they are applying for other loans.

Therefore parents should not be overly worried about the student loans. The repayment system is set up to make sure that the graduate only pays back what they can afford, when they can afford it and so the problems of normal debt repayments are not relevant. Over three quarters of students currently do not repay their entire loan and so any increases in interest rates or fees will probably not be relevant unless the full loan is repaid as those extras will not be repaid anyway.
Another concern may be that once they take on a debt, in a student loan, they may feel that it is then fine to take on other debt. However, parents can take time to explain to them why other debts are very different and how this is not a good idea. Students will also be very limited in what they can borrow and even as graduates it will take time for their credit rating to build up to a level where they can borrow significant amounts of money anyway.

Some parents may worry that having student loan repayments taken from their tax code, will mean that graduates will have less disposable income and that could affect their chances of getting a mortgage. This could be a genuine concern but the repayments on the student loans will not be significantly high. Even those on the very highest salary will not be paying huge amounts each month and so it is unlikely to make much of a difference.

If parents are that concerned, they could consider paying or the course or repaying the loan themselves. However, this may not be the best course of action. Ad many students never repay their course fees in full let alone the interest charged on them, if they are paid for outright then more money than necessary may be being paid out. Some people may feel that morally they should pay it all back and feel very comfortable with doing so while others may feel that they need only pay back what they have to. There is no right or wrong here and obviously unless you can afford it, you may only be able to pay back a smaller amount anyway. Parents could consider giving the children the money for their monthly repayments when they need to start making them.
This is very much a personal choice but could be something that concerned parents could do if they feel that their children are suffering as a result of having to find the money themselves. Some would argue that if the children are earning enough they should pay it and they need to get used to paying back their own debts rather than being helped out. But others may feel that they want to help and nurture their children and this is one way that they will do it. Again it is a very personal thing and may very much depend on your circumstances as well.

So parents really should not worry too much about student loans. Many may have gone to university for free and feel worried that their children will not get the same privilege. However, it is something which children have grown up knowing will happen and as long as they understand the consequences of borrowing money, both the positives of having a degree and the negatives of borrowing then they will have the information that they need to make the right decision.

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