Should you pay off your children’s student loan debt – or help them with their mortgage instead? That’s the headline of Sally Hamilton’s article in the Financial Mail on Sunday. Although it is aimed at the DIY investor looking to make such decisions about how best to help their offspring, Hamilton makes some sound points. We all know that Student Loans are far from cheap and that students start to incur interest right from the start of their course. The article reports the details that the interest rate on such loans is set at 3% above inflation. The measure of inflation used is the RRI as of March in the preceding year. So in March 2018, RPI was measured as being 3.3%, making the current rate of interest a punishing 6.3 per cent.
Of course, as Hamilton explains, the borrower only starts to repay the loan if they earn over £25,000 a year (rising to £25,725 in April). The repayments are set at 9% of any income over this level. On graduation, the interest rate falls sharply for many. For those earning £25,000 or less, it is set at RPI (3.3%) rising on a sliding scale up to RPI plus 3% (6.3%) for those on incomes of £45,000 or more.
But what is the answer? Well, that depends on individual circumstances as analysis done for the MoS by AJ Bell shows.
Many parents will consider the option of how best to help their offspring financially. The article concludes that, as a rule of thumb, would-be high earners will be better off paying off the loan as soon as they can as they are the ones hit with the double whammy of the highest interest rates and the highest repayment rates each month.
However, those who would never earn more than £25,000 a year ( how you anticipate that is rather a challenge –Ed) won’t need to repay any of their loan and would see the entire amount wiped out after 30 years in line with government rules.
Younger people are also featuring in the Sunday Times Money pages. We’ll skip reporting on their lead story which has a consumer focus about how parking firms buy data in order to apply fines. So, back to the youngsters! In a different way to the MoS, the ST has combined with Hargreaves Lansdown to give three families £4000 – split equally between parents and children – to invest in funds or shares via the HL platform. They’ve started the challenge and the article shows the investments which each family section has picked. The competition will last a year. Regardless of the eventual outcome, it’s interesting to see the choices made – between funds and shares – and the diversification (or lack of it in some cases).
Saving or investing for children has traditionally been a hot topic for the money pages. In the Sunday Times, Becky Barrow is writing about the options she has available for her 10 year old son. Having used JISAs and kid’s saver accounts in the past which had failed to gain their enthusiasm or attention, her conversation with them about premium bonds has seemingly engaged their interest ( sorry for the pun). The chance of someone knocking on the door with a possible prize of £1m for them was seemingly too much to resist. As she quite rightly reports, engaging young people in matters of finance is so important for their future. Whilst the chances of winning any prize for each £1 premium bond is 24,500 to 1 mean it is unlikely that they will pick up winnings, it’s the engagement factor which holds the most attraction.
Meanwhile, The Sunday Telegraph Money section is looking at how brokers and online platforms allocate interest on cash deposits and what rates they will pay. Needless to say, it’s not exactly good news for investors. The first line gives you the gist of what’s to come: “Brokers and fund shops are raking in millions of pounds by skimming off the interest earned on your uninvested money”. As Harry Brennan proceeds to report, the rules allow providers to take a slice of this interest before passing it back to clients. Some don’t have to pass it on at all, so long as they make it clear in their written terms and conditions.
The article examines the rates paid from a range of platforms and brokers, with Willis Owen being highlighted as the most generous. We reckon that it’s unlikely you’ll get many questions from clients on this matter but the numbers are all there in the article online if you want to check them out.